If there’s one thing most Americans can agree on, it’s that you don’t want a data center in your backyard.
A Gallup poll conducted in March found that 71% of Americans oppose building local data centers. Their biggest concern is energy usage. In a Pew Research Center survey conducted in July and August, half of Americans said data centers primarily have a negative impact on the environment and home energy costs.
Now, Google is betting that its large-scale AI data centers will help finance a cleaner, more reliable power grid. The proposed transaction is xcel energy It will add more wind, solar and battery capacity than data centers are expected to use.
Under the agreement, Google will help pay for the added capacity and will continue to pay for it even if it doesn’t use all its power.
Google is betting that AI can help create a cleaner power grid
Pine Island, Minnesota is a small town of about 4,000 residents located one hour southeast of Minneapolis. Google hopes its plans for a new 780-megawatt data center will build goodwill with the Pine Island community and put the company on track to reach its goal of operating 24/7 on carbon-free energy by 2030.
Google, which powered its Gemini AI in its cloud business and saw revenue rise 82% year-over-year to nearly $25 billion in the second quarter, says it has found a model to do this the right way. The company plans to raise funds to add 1,400 megawatts of wind power, 200 megawatts of solar power and 300 megawatts of battery storage to Xcel’s power grid.
These additions exceed the capacity of the data centers themselves, Google said, because wind and solar don’t always generate energy. Xcel Energy said the new power will serve all local customers, not just Google. Excel also said the upgrade will help promote carbon-free energy supply from the local grid.
The proposed agreement between Google and Xcel includes minimum demand fees and exit fees, which Google says will continue to put it in a bind over the infrastructure built on its behalf, even if the AI boom cools down. Google will pay for at least 75% of its contracted capacity, even if usage is low, and up to eight years of its minimum demand rate if it terminates the contract early.
“Nobody wants to do a major upgrade and then have nowhere to go and no one can pay for that power,” said Amanda Rome, executive vice president and chief customer officer at Xcel Energy. “That’s where these protections come in.”
The agreement between Google and Xcel Energy is pending approval by the Minnesota Public Utilities Commission.
Data centers are driving historic power increases
New data centers will account for “most” of the expected increase in electricity demand over the next decade, according to the North American Electric Reliability Corporation, a nonprofit regulator.
The Department of Energy under President Joe Biden’s administration reported that more than 70% of U.S. power lines and transformers are at least 25 years old, and found that the cheapest way to meet future demand would require more than doubling the size of the nation’s power transmission system by 2050.
But hyperscalers argue they can help fund much-needed power grid upgrades while also making the grid cleaner and more reliable.
“The timing of this industrial revolution couldn’t be more perfect,” said Amanda Peterson-Colio, Google’s global head of energy and power. “It came at a time when America needed capital to repair its aging infrastructure.”
Can data centers use grids out of the box?
Data center operators may build smaller facilities where the grid already has unused capacity, said Jigar Shah, a partner at Multiplier, a consulting firm that helps clean energy startups go public. That way, the need and cost of building new generation or transmission equipment can be minimized.
“If you fit the increased load that a data center wants into the existing grid, everyone’s bills will go down significantly,” Shah said.
That’s because existing power grids have significant fixed costs due to the infrastructure already in place, such as power plants, transmission lines, and substations. If one new customer enters the grid and pays a large portion of it, everyone else’s bill will go down.
“So the real question is, why aren’t people building this 25-megawatt data center? Why are they building a 1,000-megawatt data center? And it turns out people are just lazy,” Shah said. “They’re like, well, it’s easier to sign up for one 1 gigawatt data center than figure out how to do something with 40 or so data centers that are 25 megawatts each.”
Industry watchdog groups also warn of another reason: Utilities often prefer to build new infrastructure rather than leverage more of the existing grid.
“When[utilities]build something new, they fund some of that investment with dollars from Wall Street investors, and they enjoy incredibly high and exorbitant returns on those investments, typically about 10%,” said David Pomerantz, executive director of the Energy Policy Institute, a utility watchdog.
Building data centers that fit neatly into the existing grid provides little opportunity for utilities to generate new revenue.
What if hyperscalers offered to pay for those grid investments?
“One way to leverage data centers to lower people’s bills is for data centers to provide that capital at a much lower rate than power companies,” Pomerantz said. “But it’s a big problem for utilities, and this fight has actually already begun.”
Still, Shah said the Google/Xcel project in Minnesota is a good example of a data center project acting as a catalyst for newer, greener technologies.
“Google came along and said, “Here’s a new way to do things, using new technology. Why don’t we do it that way? That helps ratepayers. And the utilities were like, oh, that makes a lot of sense.”
Watch the video above for the full story, including an interview with Google’s global head of energy and power.
—CNBC’s Jeniece Pettitt and Lora Kolodny contributed to this report.
