New Report: Regulated Utilities Are Best Positioned to Power the U.S. Data Center Boom
Data centers are driving a massive surge in electricity demand across the U.S. and well-regulated, vertically integrated utilities are proving better equipped than their deregulated counterparts to handle it. Further, data centers are more interested in working with regulated utilities to develop projects because of these utilities’ commitment to serve customers, willingness to develop just and reasonable pricing, and consistent and practical interconnection requirements, according to a new report from Wood Mackenzie.
The report finds that the pipeline of proposed data centers has skyrocketed from 50 gigawatts (GW) to 134 GW this year. That growth could increase national electricity demand by 12% in a single year. But not all power providers are keeping up. The report shows that well-regulated vertically integrated utilities – those that plan and own generation to serve their customers – are leading the way in connecting these large, energy-intensive facilities to the grid. As Wood Mackenzie notes: “A data centre developer knows that when it has a [regulated] utility’s commitment for an interconnection, it will be able to secure power supply.”
There are a number of reasons why regulated vertically integrated utilities have the edge, according to Wood Mackenzie, including key benefits to new and existing customers:
Better planning: Vertically integrated utilities can match new demand with new generation through integrated long-term planning. As Wood Mackenzie explains: “In markets with vertically integrated utilities, the utility commits to serve a new load only when it can ensure it has the power supply to do so reliably.” Careful planning and approval of integrated resource plans allows vertically integrated utilities to secure the resources needed to serve load growth.
Faster connections: Their control over infrastructure helps reduce delays. “Because of [regulated utilities’] integrated planning processes, they are best placed to advise data centre developers on how to shorten development timelines,” says the report.
Local support: They often have stronger community and political relationships that help move projects forward.
Strategic land: Many own former power plant sites with grid and fiber access, ideal for data center development.
Well-established and functioning regulation: Through state-based regulation, vertically integrated utilities have well-understood and well-functioning processes for moving projects through on reasonable timelines. As the report notes: “In regulated markets, it is easier, through regulation, to allocate the increased investment costs needed to serve large loads directly.”
In contrast, deregulated markets are struggling to build new power plants fast enough. Without centralized planning, they face growing risks of grid congestion and outages as demand outpaces supply. As the report says, “In deregulated markets, which rely on the wholesale power market to match supply and demand, it is the price of wholesale power that provides the signal for new investment. If higher prices are required to incentivise that investment, all customers will face higher prices.”
As the U.S. faces an unprecedented wave of data center development, the report makes one thing clear: regulated utilities are best positioned to deliver the power reliably and at scale.