A new report finds that the rise in requests to build huge data centers across the country could reshape the size and cost of the electric grid in Michigan.
The Union of Concerned Scientists estimates that within five years data centers could require well over half of all the new power demand in the state.
One of the report’s co-authors, Lee Shaver, specifically analyzed the likely impact of data centers on Michigan.
Shaver says the question is not how much new electricity Michigan will need, it’s who will pay for it.
The following interview has been edited for clarity.
Lee Shaver: The utilities have what’s called an obligation to serve. So they are going to build enough generation capacity to be able to meet the demand from data centers. The way that the system is supposed to work is that whoever causes that new demand pays for it. But the amount of demand we’re seeing from data centers kind of upsets the way that these things have been done historically. There’s a much higher likelihood that customers other than the data center would end up paying for a portion of those costs.
The big difference is just how much larger the data centers are. As an example, the total size of the data center that DTE Electric was just approved to connect to their grid in Saline Township would be 1.4 gigawatts, which is equivalent to the energy demand of over a million homes.
If could take decades for a million people to move into a new city. It’s slow growth that the utility can plan for over a long timeframe. Those costs can be spread out very easily. But when you’ve got a million homes showing up in a community in less than two years, that’s a massive amount of growth. There’s tons of new infrastructure that has to be built. And the regulation just can’t accommodate that level of growth without the way that those costs are covered being distorted.
Quinn Klinefelter, WDET News: The Michigan Public Service Commission says the agreement between the data center and DTE includes strong protections against a big rate increase for customers. I’ve also heard that some utilities require owners of data centers to pay what’s called a “large load tariff.” Just what is that?
LS: The word tariff is a bit misleading, especially since tariffs have been in the news so much. But when a utility talks about a large load tariff, they’re talking about a set of terms and conditions that data centers have to agree to in order to be provided with electric service.
And there are a lot of really good and positive things in those tariffs that utilities are proposing, like minimum contract terms, minimum monthly billing amounts. The challenge is that, especially in Michigan, especially with the DTE data center that was just approved, there’s just not enough detail that has been made public from these large load tariffs and from the applications that the data centers themselves are submitting for the public to have assurance that the costs are actually going to be covered.
QK: Is there a point where you finally find that out one way or the other? Does it have to be when the centers are operating or can it be determined while they’re constructed?
LS: There’s several points in the process at which that needs to be done. Obviously the large load tariff needs to be in place when that contract between the data center and the utility is signed. There has to be transparency. A lot of that information, though not all of it, should be public so that it can be reviewed. And there should be regular reporting on at least an annual basis. The utility and the data center should be providing information back to the regulators to say, here’s how much energy was provided, here’s how much it cost, here’s how it was paid for. And at the same time, look at how the billing of other customers changed over that same time period.
QK: Does it take until the things are actually up and going before you can really find that out? Or can you tell that during the construction process?
LS: You need both pieces. You’re not going to get assurance that it happened properly until after things are up and running. But if you don’t have a good framework in place at the beginning to collect and share that data, you would never get any reassurance that it’s been done properly.
QK: Beyond purely financial considerations, I’ve heard some concerns about the possible health or other costs that could be associated with these massive data centers. In your view, is it reasonable to be worried about some of those effects?
LS: Absolutely. What we know today is that any new data centers coming in the near term are going to result in more fossil fuels being burned to provide them with power. And when we burn fossil fuels, there’s emissions of heat trapping carbon dioxide, nitrous oxide, sulfur dioxide and other pollutants that have measurable health impacts. Our report found that due to data centers being built over the next 5-10 years, there’s close to $20 billion worth of health damages that would be caused from air pollution, most of which would happen directly in Michigan. And the global climate damages are estimated to be over $400 billion across the 2026-2050 timeframe.
QK: Having analyzed the issue, what, in your view, is the best strategy for a state like Michigan to follow in regards to where or how many data centers are allowed in?
LS: We didn’t speak to whether or not specific data centers should be allowed to operate, but we do make a couple of recommendations from the policy side.
In addition to the steps that need to be taken to ensure that data centers pay for their own costs, we also recommend what we’re calling a CO2 reduction policy. We found that’s necessary because, while Michigan does have some really progressive clean energy and renewable energy standards, with the growth in data centers, those standards are not enough to continue Michigan on the path to reaching net zero carbon emissions. A CO2 reduction policy would essentially set a limit on how much fossil fuel can be burned in the state of Michigan. And by enacting that limit, over time combustion of fossil fuels will be reduced and all of those negative health impacts would diminish.
QK: Considering the current makeup of Congress and the White House, in your view, how realistic is it that such prohibitions could actually get through?
LS: Our recommendation is actually at the state level, for exactly that reason. And our modeling shows that regardless of policies elsewhere, if Michigan were to enact a CO2 reduction policy, it would have significant impacts on reducing emissions in Michigan.
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