Transmission Bottlenecks and the Impact on Data Center Growth

The surge in data centers and the accompanying power demand is putting unprecedented pressure on transmission infrastructure across the U.S. Data centers, which are essential for supporting AI, cloud computing, and data processing, are growing rapidly, especially in concentrated areas like Northern Virginia. However, the strain on existing transmission infrastructure could slow or even halt this growth unless proactive solutions are implemented. Here’s a look at how transmission bottlenecks challenge data center expansion and what can be done to address these hurdles.

The Transmission Challenge

Data centers are increasingly centralized in high-demand regions, which has significant implications for power distribution:

• Concentrated Demand: In places like Northern Virginia, where the demand for data centers is highest, the strain on transmission infrastructure is particularly pronounced. In fact, Northern Virginia has more data centers than the next five largest markets combined, leading to intense power demands that far exceed typical commercial needs.
• Slow Infrastructure Development: Building or upgrading transmission lines can take years, requiring complex permitting and construction phases. This timeline makes it challenging for utilities to keep up with the rapid growth in data center demand. As power needs rise faster than infrastructure can support, utilities in data center-heavy regions find themselves facing bottlenecks that threaten the continuity of power delivery.
• Regional Impact: Since data center demand is concentrated in specific areas, utilities in these regions are under more pressure than others, facing unique demands for infrastructure development that other regions may not experience.

Case in Point: Dominion Energy’s Challenges in Northern Virginia

Dominion Energy, the utility serving Northern Virginia, illustrates these challenges. Between 2017 and 2023, the region saw data center power demand grow at a compound annual growth rate (CAGR) of nearly 24%, with future demand expected to continue rising at nearly 10% annually. In 2022, Dominion faced severe transmission constraints that threatened its ability to power new data centers in the region, prompting a temporary pause on new data center connections.

To tackle these challenges, Dominion partnered with PJM Interconnection (PJM), the regional transmission organization, to expedite the construction of two 500-kilovolt transmission lines. This collaboration underscored the need for rapid infrastructure upgrades to support the region’s growth. PJM also held a competitive auction for transmission projects, awarding $5 billion worth of projects driven by the projected 7.5 gigawatts (GW) of data center demand and 11 GW of retiring power generation in the region.

Transmission Needs: A Nationwide Challenge

The Northern Virginia example highlights a critical reality: the U.S. needs to invest substantially in transmission infrastructure to keep pace with data center demand nationwide. Based on cost estimates from the PJM auction, about $19 billion in transmission capital expenditures (capex) could be necessary by 2030 to support the growing power needs of data centers across the country. As AI and data centers grow, existing transmission constraints could worsen, becoming a significant bottleneck not only for data centers but also for the broader clean energy transition.

The Path Forward: Addressing Transmission Bottlenecks

Solving transmission bottlenecks requires a multifaceted approach that includes proactive investment, strategic collaboration, and innovative solutions.

1. Proactive Planning and Investment
   Utilities must anticipate future data center demand and invest in new transmission lines and upgrades to existing infrastructure. With forward-looking planning, utilities can address demand spikes before they become critical.
2. Collaboration Across the Energy Ecosystem
   Effective coordination between utilities, regulators, and regional transmission organizations (RTOs) is essential. These entities must work together to streamline approvals and construction processes, ensuring transmission projects are completed in a timely manner to meet growing demand.
3. Exploring Alternative Solutions
   Emerging trends, such as direct connectivity of data centers to gas transmission systems, could offer a workaround by reducing reliance on traditional power infrastructure. Direct gas connectivity might help alleviate some of the demand pressures on the power grid, though this approach would require its own set of infrastructure investments.

Conclusion: Supporting the Digital Economy’s Growth

Transmission constraints pose a significant threat to the expansion of data centers and, by extension, the digital economy. To support ongoing data center growth and the demands of the digital age, proactive transmission infrastructure planning is essential. With examples like Dominion Energy’s response in Northern Virginia, it’s clear that collaboration, investment, and strategic planning are key to ensuring that transmission infrastructure can meet the needs of the future.

By addressing these bottlenecks, utilities and stakeholders will not only empower data center growth but also enhance the resilience of the U.S. power grid, making it better equipped to handle the increasing demands of both AI and the broader clean energy transition.

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