Early Examples Show Efficiency and Demand Flexibility in Buildings Can Help Meet Data Center Loads

Amid the growing consensus that data centers should fund their own power generation and grid upgrades, companies and policymakers are discovering that energy efficiency and load shifting in homes and other buildings are a key part of the solution.

Shortages of power generation and grid equipment, combined with slow deployment of new clean energy, are driving up energy costs. For electric utilities and data center owners, freeing up capacity on the existing electricity grid by increasing energy efficiency and shifting the timing of some electricity use in homes and other buildings is a promising, cost-effective solution that can be scaled up to help meet growing electricity needs.

In recent months, new projects and state policies have been moving toward greater investment in demand-side resources to help address data center loads while lowering bills and reducing energy waste.

Some tech companies are starting to fund demand flexibility to help meet electricity needs

In June, Google announced an agreement to fund 100 megawatts of demand flexibility and other community-based power resources from homes and businesses in the mid-Atlantic to help meet data center electricity needs. Demand flexibility programs pay thousands of electric customers who voluntarily shift their electricity use temporarily by adjusting things like when water heaters or heating and cooling systems run, while still maintaining indoor comfort.

Under the agreement, the company Voltus will aggregate distributed energy resources from residential, commercial, and industrial customers across the PJM grid region in what Google pledges will be a “scalable blueprint” to help meet data center demand. With less strain on the grid, the project is expected to reduce the need for costly grid upgrades.

Also this summer, three companies—Tesla, Sunrun, and Renew Home—announced they have pooled more than 16 gigawatts of capacity (equivalent to more than 30 typical power plants) that combines demand flexibility, solar, and battery storage in homes across the country. Last year, the three companies’ community-based power helped grid operators and utilities avoid blackouts amid peak demand, compensating participating households with $67 million in lower electricity bills. The three companies now plan to use their community-based power, also known as a virtual power plant, as a “365-day resource” to power data centers.

Using demand flexibility to accommodate large new loads can reduce costs significantly. An analysis of Nevada utility NV Energy’s integrated resource plan modeled pairing one to two gigawatts of additional load with flexible demand and found it would save about $300 million.

These new approaches show how demand-side resources can not only help meet data center power needs but can also accommodate other sources of rising electricity demand, such as transportation and building electrification and new industrial loads, while offering participants savings on electric bills.

Policymakers and regulators are starting to accelerate demand-side solutions

Policymakers and regulators are also beginning to recognize the value of efficiency and demand flexibility to meet growing electricity use while limiting costs. Last month, New Jersey Governor Mikie Sherrill signed the Data Center Fair Share Act. It requires utilities to develop programs for data centers to pay for verified demand reductions by other customers on the same grid to offset a data center’s electricity use. Under the law, the state utility regulator must prioritize the interconnection of large data center customers who make binding commitments to meet their electricity use through demand flexibility, renewable energy, and batteries.

In the last year, Kansas and Wisconsin have moved in the same direction, with regulators in both states authorizing large-load customers like data centers to procure energy efficiency and flexible demand, not just new generation, to meet their power needs.

Policymakers and regulators in other states are considering similar measures. In North Carolina, a regulatory proposal from the Corporate Energy Buyers Association would allow large electricity customers to receive credit for voluntarily procuring efficiency and demand flexibility in the state. Illinois legislators are considering the POWER Act, which seeks to minimize the impact of data centers on utility bills. The legislation includes provisions that would allow efficiency and flexible demand to compete alongside traditional power generation to meet demand.

Grid planning needs to catch up

ACEEE’s Faster and Cheaper research report released this year found that efficiency and demand flexibility in buildings could together free up 130 to 270 gigawatts over the next 10 to 15 years, more than even the most aggressive projections of total U.S. data center capacity. Demand-side resources have been shown to cost less than half as much as meeting demand with new power plants, according to the report. Building on the research, ACEEE is now advising state legislators and utility regulators on how to use efficiency and demand response to help meet load growth from data centers and other sources.

Now is the time to scale efficiency and demand flexibility to their full potential to meet today’s needs. Utilities, regulators, policymakers, and large electricity customers like data centers should build on these new frameworks to expand investment in community-based power to meet growing electricity demand and reduce the need for expensive new power generation and grid upgrades.