The power needs of data centers run by America’s technology giants will open the door to new natural gas-fired generation under a strategy advanced by the largest U.S. grid operator, pushing aside carbon-free wind and solar projects.
PJM Interconnection, which manages the high-voltage grid serving 65 million people in the mid-Atlantic and Ohio River Valley, has approved changes to how it decides which new power plants can connect to the system. PJM officials say the new policy is driven by an urgent need to build more electricity generation to power data centers fueling tech industry growth.
PJM has warned that doing nothing to increase generation could leave the grid dangerously short by the end of the decade.
Cloud computing giants like Amazon, Google, Microsoft and Meta, among others, are vying for access to long-term and stable power. Inside the PJM footprint, much of the activity is clustered in northern Virginia, where artificial intelligence technology is pushing energy demand to new levels.
PJM expects to bring its Reliability Resource Initiative (RRI) to the Federal Energy Regulatory Commission this month. The plan would allow a new round-the-clock gas generator to “jump the queue,” moving in front of some renewable energy projects that have been waiting for years for permission to connect to the PJM grid.
“Priority would be given to those resources that have a greater chance of contributing to reliability,” PJM said.
PJM reported in October that it has enough resources to meet forecast demand for electricity this winter “under expected conditions,” but severe weather could trigger emergency procedures.
“The PJM system is reliable today, but we are keenly aware of the challenges we face as system reserves continue to erode,” PJM CEO Manu Asthana said. “The trends we are seeing raise system risk under the kind of extreme weather we have seen over the past few years.”
PJM said it now has nearly 180 gigawatts of generation to meet an expected peak winter demand of 141 GW.
That’s today. But PJM officials say the grid’s safe operating margins will shrink steadily over the balance of the decade because of increasing power demand and expected retirements of older coal- and gas-fired plants. Two years ago, PJM said about 40 GW of fossil fuel plants were at risk of retirement by 2030. PJM’s independent market monitor, Monitoring Analytics, estimated the figure is nearly 60 GW.
The new power sources PJM hopes to add through the RRI process would be needed by 2029. PJM said it plans to make decisions on new plant approvals by the fourth quarter of 2026.
A statement to FERC from the Illinois attorney general; the Illinois Citizens Utility Board; and state consumer counsels in Maryland, Washington, New Jersey and Ohio, challenged PJM’s analysis.
“Yes, load is increasing — but PJM has historically overestimated load and appears poised to do so again by exaggerating the likely additions of massive data center loads without firm power supplies,” the agencies said.
“And yes, some supply resources are seeking to retire, but PJM ratepayers will pay hundreds of millions of dollars to forestall some of those retirements without receiving in return anything approaching the full reliability value that these ratepayer-funded resources can provide,” the state agencies said.
While high and low estimates of data center growth vary widely, the time required to plan, approve and build new power plants or transmission lines leaves little room for error, particularly if the high scenarios happen.
“Billions of dollars of new investment in generation and transmission capacity will be needed to restore a healthy reserve margin and to recover that portion of reserve capacity that has been consumed by data centers,” said economists Ike Brannon and Sam Wolf in a report for the Kemp Foundation in October.
The number of data centers planned or under construction in northern Virginia will raise power demand from data centers in the region to 7 GW in 2030, a doubling in just seven years, the authors said.
“One way or another the grid needs new investments to avoid future blackouts and brownouts,” said the economists.
Climate and pipelines
A powerful new cycle of electric demand growth fueled largely by natural gas generation would deal a blow to efforts to reduce planet-warming carbon emissions at a time when President-elect Donald Trump is about to return to the White House promising to dismantle the Biden administration’s clean energy initiatives.
The PJM proposal has sparked broad protests from renewable energy developers, climate policy advocates and state consumer protection agencies.
The PJM plan, as it was presented by the grid operator, would allow up to 50 new generation projects to enter a cluster of previously proposed power facilities. The current projects have been waiting more than three years for PJM’s approval, said Invenergy, the Chicago-based renewable power and transmission developer, in comments to PJM.
The current projects totaling 96 GW of generation capacity are almost entirely renewable energy projects.
“Vague assertions of reliability do not suffice to make PJM’s case, nor has PJM provided any evidence that its evolving proposals will address the anticipated shortfall,” Invenergy said in a statement.
“RRI is unjust and unreasonable as it retroactively changes the terms for projects that have been waiting years in the interconnection queue, and is unduly discriminatory against certain technologies,” said attorneys for the Natural Resources Defense Council, the Sierra Club, PennFuture and Earthjustice.
“Instead of capping the RRI at an arbitrary number of [50] projects that will deliver an unknown amount of capacity on an unknown timeline, PJM should instead base its RRI cap on a defined resource adequacy need,” the groups said.
The 50-project figure strikes a balance between the resources available for processing additional projects and minimizing the potential for delays to existing projects awaiting evaluation in the queue, PJM spokesperson Jeffrey Shields said.
Under PJM’s proposed system for ranking and approving projects, natural gas plants have a much higher score because of their ability to operate around the clock, in contrast with wind and solar plants. That factor “could be viewed as an advantage on a stand-alone basis [but] PJM’s RRI proposal is designed to take a holistic view of a project’s contribution to resource adequacy that allows all resource types to compete for a spot as an RRI Project,” Shields said.
But Invenergy said that there is no requirements that the new projects added to the queue be in service by 2029, nor are there any consequences if they fail to meet the deadline.
Invenergy and others joining its protest “strongly encourage PJM to step back and analyze where the region is and where it is going, rather than making reactive, piecemeal changes,” their letter to PJM said.
An expectation that new electricity demand from data centers will be met by burning more natural gas is gaining converts on Wall Street. In late November, Appalachian gas company EQT announced a $3.5 billion investment by Blackstone Credit and Insurance.
“It is a sign of future confidence in natural gas, and does play into the data center demand story,” said Ajay Bakshani, director of analytics for East Daley Energy Intelligence.
EQT’s properties include the Mountain Valley pipeline that delivers gas to southern Virginia, where data center developer Balico is planning to power a campus of supercomputers with gas turbines.
But the PJM strategy built around new gas plants will require building new gas pipelines through eastern U.S. states, often against stiff opposition from residents. “There is no additional pipeline capacity to be able to increase production” from the Appalachian gas fields, said David Braziel, CEO of Houston-based RBN Energy.
Gas producers in the Marcellus and Utica shale regions of Pennsylvania and Ohio ran into trouble in December 2022 during Winter Storm Elliott. The storm cut off a third of gas production flowing to PJM power plants, according to North American Electric Reliability Corp., the nation’s grid monitor.
Outside of Texas, according to NERC, there is “little to no information to indicate that upstream gas producers, gatherers, and processors have improved winterization of their operations.”
