Fear around data centers are warranted for NC communities

But creative solutions could mitigate the downsides, says Jackson Ewing.

Welcome back to Down from DC, where we keep up with decisions our elected officials in DC make and their impact here in NC.

Tech giants including Amazon, Google, Apple and META are turning to North Carolina for the massive data centers they need to power artificial intelligence that’s transforming every aspect of our lives.

By one industry count, North Carolina is home to 93 of these data centers, with dozens more in the works, covering hundreds of acres and costing hundreds of millions or more, potentially boosting the local property tax base. With 35 of these centers, Charlotte has the highest concentration in the state. Earlier this month, the city council there passed a moratorium on approving or considering new data centers, joining a groundswell of opposition that stretches from the Tennessee border where the Eastern Band of the Cherokee Indian Tribal Council passed a moratorium last month all the way to Edgecombe County in the east.

via Data Center Map

“This is not a partisan issue when it comes to protecting our neighborhoods across the city,” Charlotte councilmember Dimple Ajmera said earlier this month, according to reporting by The Charlotte Observer. “This is about clean air, clean water.”

National polling shows that Republicans and Democrats across the country oppose data centers in their communities, with Democrats more likely than Republicans to be “strongly” opposed. A recent poll by The Carolina Journal, published by the conservative think-tank John Locke Foundation, found that 78 percent of NC voters think data centers should generate their own energy. Another poll, by the Center for NC Politics at Catawba College, found that about two thirds of North Carolinians, whether they’re Democrats, Republicans or unaffiliated, are concerned about energy consumption for artificial intelligence. And more than half of North Carolinians believe that the development of AI is less important than renewable energy.

With lawmakers facing public pressure this election year, the NC Legislature took up a bill this month called the Ratepayer Protection Act that among its many provisions would require data centers to pay for the electrical infrastructure needed to run them, limit incentives local governments are allowed to pay to attract them, and prohibit companies from using eminent domain for the land they need. But as Lisa Sorg with Inside Climate News reports, the bill also undoes two decades of energy policy, delaying the retirement of coal-fired power plants and speeding up approval for nuclear power.

The scale and speed of construction has caught many of us by surprise. I wanted to better understand what state and local governments can do to regulate data centers and what role, if any, the federal government plays. Earlier this month, I turned to Jackson Ewing, the director of energy and climate policy at the Nicholas Institute for Energy, Environment & Sustainability at Duke University, for a crash course in energy policy.

Here are some big takeaways from our conversation:

• The data center boom creates the largest increase in demand for electricity in a generation. They also use enormous amounts of water.

• NC is attractive to tech companies for our relatively low electricity rates, reliable water supply and available land.

• The companies that are driving the boom are among the wealthiest in the world and could help pay to modernize our electrical grid.

• Because the electrical system is managed locally and regionally, regulation falls largely to state and local governments.

• If our government officials and tech companies act now, we have a chance to build a cleaner energy system that could slow climate change

The transcript of our conversation—edited for length and clarity—follows. If you find the discussion useful, please share the link with a friend or neighbor. And if you haven’t already, please subscribe. It’s free.

Phoebe: Can you talk about the global forces driving this data-center boom that’s playing out in communities across our state?

Jackson : We see a really voracious appetite for computing power among some of the most capitalized companies in the history of the world. These are companies that are contributing to the majority of our country’s GDP growth right now. I’m talking about the Googles, the Metas, the Alphabets, and the new entrants like Anthropic, OpenAI, companies like Nvidia that are providing the chips that fuel this boom.

These companies are in competition with one another and are in competition with international competitors in large part, but not exclusively, from China. And so they view it as imperative that they are able to increase their computing power rapidly.

Phoebe: What makes North Carolina so attractive?

Jackson: There is relatively cheap electricity compared to some other parts of the country. I don’t want that to be taken out of context or appear as though I think that electricity prices in North Carolina are fine. They’ve certainly been increasing and that’s a challenge for many households and many businesses. But compared to parts of the northeast for example, compared to California for example, North Carolina’s electricity prices are viewed as affordable and the ability to access electricity in the state is also attractive compared to some other peers.

There’s also, again, relatively speaking, available land and there are different incentives and regulations in place that are viewed as pro business. North Carolina also has a growing population, strong financial and research and tech services. And so you put all this together and combine that with the fact that there is some proximity to where demand will be high from the large population centers along the eastern seaboard and you have a pretty attractive environment.

Phoebe: Some communities are encouraging data centers with incentives, but there’s been a groundswell of opposition driven in part by concern over power bills. Can you talk a little bit about whether these fears are warranted?

Jackson: The fear is warranted, but it’s not a foregone conclusion that those outcomes have to come to pass. They’re warranted because in a traditional regulated utility model, if we have to build a lot of new generation infrastructure and new wires in the forms of transmission and distribution wires to service that data center need, and we then collect up those costs and we go to our public utility commission here in North Carolina, and we say, “This is how much it’s cost us to build all this new power infrastructure right now. We’re going to take a profit margin on that, too, as the utility, so this is what the new rates should be for customers across the state.” If those rates are just spread broadly from those costs without any differentiation between what is the responsibility for these new data center loads, then absolutely that will lead to rate increases for other commercial and industrial customers. It will lead to rate increases for residential customers.

But there are ideas about how to prevent that kind of outcome and they’re not just purely hypothetical. These are ideas that are being put forward by the North Carolina Energy Task Force. These are ideas that are being explored by the U.S. Department of Energy and the Federal Energy Regulatory Commission that attempt to have the data centers pay for that additional infrastructure that will service their loads and to keep that out of the larger rate-payer base and also to take some creative approaches to their operations that can lessen the impact on the broader energy system.

Phoebe: I want to come back to that later. The other concerns that you hear out of these public meetings is people are worried about water usage, noise, loss of farmland and other damage to the environment. What’s your assessment of those concerns?

Jackson: So data centers are water intensive in many ways, for cooling operations and beyond. There is variability there and I think that there is some progress in lowering cooling needs of some data centers with creative new approaches and new chip designs and things like that.

One thing that is quite clear is that the water demand makes site selection very important. It’s often the municipalities that are managing water systems and expected to build the infrastructure necessary to provide water. And so in some areas that can create a real challenge. In other areas it frankly won’t because of existing water resources. So that’s very site-specific.

Similarly, there is variance in how disruptive the noise is from data centers. Not all data centers are created equal…. Some of these campuses are going to be quite large and so it’s understandable that different communities might view this as not worth it to them to dedicate some of their land to a data center. Some people find them unsightly and that land could be used for other purposes, whether that be kept wild or used for farming or used for other commercial operations and so on and so forth.

These are choices that communities have the ability to influence if they don’t view the benefits in terms of tax revenues and jobs as worth the investment, giving up that level of land and the water and energy that’s needed to service them.

That leads to another complaint that we hear with data centers, which is that they are not engines for employment on the same level that traditional commercial and industrial energy, land, and water users are. So, you’re not going to get as many jobs out of them. You’ll get a boost in construction jobs on the front end, but in terms of the operations when they’re going on, there’s justifiable criticisms that we’re talking about dozens of people to run a huge data center, compared to much higher ratio of employees to the kind of power and resource use for an automotive plant, for example.

Phoebe: What’s your assessment of how effective moratoriums and zoning restrictions are in regulating this industry?

Jackson: Moratoria and permitting and zoning and siting restrictions at local levels can be effective in keeping data centers from being built in those locations. I think they’ll get built in other locations and the companies building data centers recognize this and they’re just going to venue-shop until they find the advantageous places that ticks a lot of the boxes that they need in order to get these operations off the ground. And again, these are companies with really, really large balance sheets that have a strong track record of getting things done relatively rapidly. And so the forces there are quite strong. My position is that broadbased, data-center moratoria across the country might slow down construction but are unlikely to prevent it in a major way.

You also marry that with a real federal government interest in the global leadership that the U.S. currently has, but by a relatively thin margin in AI. It views [that leadership] as really important to things like national defense, to economic competitiveness, and by extension to geopolitical power. So there are going to be federal government incentives and pressure to ensure that what it views as critical infrastructure for building out AI happens in the United States.

That doesn’t necessarily mean that the federal government is in position to come to community or county X in North Carolina and say, “You have to do this.” These communities do still have the ability to say no. But in aggregate, the forces behind getting the data centers built are stronger than the forces behind preventing them.

Phoebe: The North Carolina legislature is just now debating a bill called The Rate Payer Protection Act that requires data centers to pay higher electricity rates, limits incentives from local governments, speeds up the move to nuclear power and at the same time slows the phase-out of coal-fired plants. What do you make of the approach NC lawmakers are taking?

Jackson: The pieces of the Rate Payer Protection Act that require data centers to pay rates that cover more of their operations and prevent those rates from being spread across other businesses and residences are a positive development. I think those are the sort of solutions that we need.

The main thing I take issue with is language that ties the retirement of coal-fired plants to the approval of new nuclear power stations. I think that’s a misguided policy. Coal-fired power stations across the country and across the state have been progressively being retired for multiple decades at this point and the influx of data centers is not such that that should be rolled back, particularly in multiple cases where our state utility, Duke Energy, has planned for years to retire particular coal-fired power stations and was prepared to do so and this is in many ways a disruption to their operations that they didn’t really ask for. This bill goes a step further and ties the phase-out to nuclear development and that creates a lot of uncertainty because we don’t know when nuclear will ultimately come online.

Speeding up some of the licensing and permitting for nuclear to help meet this new load growth could have some virtuous results from a climate and a local pollution and affordability perspective. I also think that we can service this load through some expansion of gas-fired plants without having to wait a decade for nuclear energy and without having to depend on the perpetuation of coal-fired power. We can also service these data centers much of it through more aggressive policies on renewables combined with storage. And we can service it more effectively through requiring or incentivizing the data centers to be flexible in their operations.

Phoebe: Earlier, you talked about creative approaches to the way data centers operate that could reduce energy use. Can you explain what you mean?

Jackson: The flexibility I just mentioned is an approach to demand response that is specific to data centers and that could enable us to get more energy out of our existing infrastructure. When we build our power infrastructure, we build it to be able to service when our demand is the highest that it ever is and we even go a bit above that because you need reliability, so you need some redundancy in the system in case something unexpected happens. As a result, we are building infrastructure for the hottest day in July or August, at the time of the day when everyone’s coming home and blasting their air conditioning and turning on all their appliances or for the coldest day in February, when we have these major increases in our heating energy usage. That means that for the vast majority of the year we are using much less electricity than is available in the power grid.

Flexibility in data centers explains how they can shift their operations to be responsive to how much demand for electricity is occurring elsewhere in the broader system. So on that hot day in July or that cold day in February, a data center might be compelled through regulation to curtail their operations to do less computing and as a result use less energy and allow for the grid to continue to operate reliably without having to build all of the new generation and transmission and distribution that would meet all of that load on that hottest day in July.

They can do that in a few ways. One, they can just reduce the operations themselves or they could shift those operations to elsewhere in their broader network. So when the power stress is particularly high in one location, maybe that computing that is required based on what their customers want can happen somewhere else. A data center can plan some of its operations to happen at times when use elsewhere on the grid is lower, so for things like large-language-model training, when you’re going to have really high energy use, they can plan that in advance at a time when other energy uses are going to be low. Now the tech companies will tell you it’s not quite that simple, but there is a possibility there.

And the other thing they can do is to have more power generation ability on site. So let’s say the grid includes really large batteries or some backup generation, like a small natural-gas unit on site. So at times when power is abundant, you charge up your really large batteries. At times when power is stressed through demand elsewhere on the grid, you use that battery storage that you’ve built up.

The incentive for them is that by operating more flexibly, they can get online quicker. That’s why many of these companies are willing to entertain these sorts of arrangements where they don’t have constant access to all the power they want at every particular second of the day, but rather they are willing to act flexibly through one of those pathways I just described.

Phoebe: What you’re recommending, then, is that NC lawmakers require that data centers have storage on site and backup generators on site and operate in this flexible manner?

Jackson: Yes, absolutely. We can create flexibility tariffs, which essentially is a rate structure that incentivizes these data centers to be flexible or you could have flexibility mandates to curtail operations if we face major demands elsewhere on the grid. You can also mandate or incentivize more what we call “bring your own capacity” that says in order to connect, you have to have a certain amount of storage of backup generation that doesn’t drain the grid.

And then one thing that’s a little less tested but I think it’s quite promising is that you can create arrangements whereby the data center doesn’t just come in and myopically try to service its own load. It actually invests in energy generation, transmission, distribution, storage elsewhere in the grid that will service other customers and as a result could lower their electricity bills.

It could be a force for having cleaner generation if they’re investing in, for example, solar and storage, and also for their own self-interested reasons, reducing the grid burden of their own operations because they’re creating power elsewhere ... Ultimately, we could take this load-growth moment, which has a lot of potential risks, and turn it into something that uses this major capital influx into the power system for positive ends.

Phoebe: That sounds very optimistic.

Jackson: I don’t mean to sound naive or that this is a panacea, but I also want to be clear that the kind of arrangement that I just mentioned is happening in multiple places around the country… They’re being pursued in New Jersey. They’re being pursued in Minnesota. North Carolina is at this moment in a somewhat earlier part of the journey on that, and so I certainly think they are possible and that there are no particular structural or kind of physical characteristics of the state that would preclude them.

Phoebe: What are some things that the federal government could be doing to regulate the industry and encourage the kind of flexibility you’re talking about?

Jackson: If we wanted to rank the most important forces that are relevant here, I think that we should start with the private sector, with the businesses that are driving the growth and with states and beyond that to regional transmission organizations (RTO’s) that cover a given service territory all before we get to the federal government and that’s largely because our approach to power systems in the United States is distributed across different states rather than being nationalized. We don’t have a coherent national grid.

Some of what’s happening is the Department of Energy put out an advanced notice of proposed rulemaking that was about policies and regulations that it wanted to see [the Federal Energy Regulatory Commission] execute on large loads and it does contain a provision about flexibility. It’s less vocal on having lower carbon generation sources, as you would imagine given this administration’s position on energy generation. But it does instruct FERC to try to implement regulation that addresses some of the other challenges with data centers. Now there’s a jurisdictional question about where first authority starts and stops, and many states have seen this as an infringement on their own jurisdictional power and so that is going to be in various ways disputed, but it is something that approaches a more national set of policies and principles that could guide some data center development issues.

I am grateful to Jackson for sharing his expertise. You can read his work at the Nicholas Institute here. We’ll be following the Ratepayer Protection Act as it winds its way through the N.C. General Assembly this session and keeping up with any rules issued by FERC. In the meantime, if you have more questions about data centers and what they mean for your community, drop us a note at downfromdc@gmail.com.