US power grid strained by AI demand, raising concerns
▼ Summary
– PJM Interconnection, which managed low electricity prices for decades, now faces urgent calls for reform from politicians, businesses, and power companies, with its CEO stating the current situation is “not tenable.”
– Surging demand from cloud computing and AI, combined with PJM’s 2022 pause on new interconnection applications, has created a severe backlog; of over 300 gigawatts in queue, only 23 gigawatts have been connected.
– PJM’s white paper proposes three options: requiring longer-term commitments from utilities, splitting customers into reliability tiers, or shifting toward a real-time market while retaining long-term contracts.
– Utility American Electric Power is considering leaving PJM due to lack of confidence in its ability to resolve issues, warning the same problems could persist for another decade.
– Rising data center demand and the shift to renewables and batteries are colliding with PJM’s rigid three-year market structure, making its proposed reforms unpopular with both politicians and utilities.
For decades, the regional transmission organization PJM Interconnection operated largely unnoticed, efficiently balancing electricity supply and demand while customers in its territory enjoyed some of the lowest power rates in the United States. That era of quiet reliability has come to an abrupt end.
Today, PJM finds itself at the center of a storm. Politicians, businesses, households, and power companies alike are demanding a fundamental overhaul of the grid operator. Remarkably, PJM itself agrees. In a white paper released this week, the organization warned that its region “has years, not decades” to implement sweeping changes. “The current situation is not tenable,” wrote PJM CEO David Mills in the report’s forward.
Such a technical document would typically attract little attention beyond a small circle of regulators and legislators. But PJM’s territory encompasses a massive concentration of data centers, particularly the compute-dense region of Northern Virginia, making its fate deeply consequential for the tech industry. The 70-page white paper is an exercise in deep introspection, yet skepticism remains about PJM’s ability to reform itself. American Electric Power (AEP), a major utility, is even considering withdrawing from PJM entirely.
“The current state of PJM’s performance and stakeholder approval process does not give me great confidence that these issues will be resolved anytime soon,” AEP CEO Bill Fehrman said during an earnings call Tuesday. “In fact, if something is not done now, I expect we could still be having these same conversations in 10 years. The PJM market worked very well when supply exceeded demand; we are now in a very different time.”
The primary driver of this crisis is the surging demand from cloud computing and artificial intelligence, which has begun to strain PJM’s existing generating capacity. Facing a years-long backlog, PJM paused applications for new power sources to connect to its grid in 2022, just as electricity needs were beginning to grow for the first time in decades. This effectively barred new projects from even entering the queue.
While PJM is not solely responsible for the backlog,many interconnection requests are duplicates, with developers submitting the same project in multiple regions to see which clears first,its slow approval process has been crippling. Of the more than 300 gigawatts of projects in the queue in 2022, only 103 gigawatts signed interconnection agreements, and a mere 23 gigawatts have been connected so far. Most developers simply withdrew rather than endure the wait. Demand remains so intense that since PJM reopened the queue, power companies and developers have filed over 800 new requests for a staggering 220 gigawatts of new power.
To address these challenges, PJM’s white paper outlines three potential paths forward. The first option would force utilities and generators to make larger, longer-term commitments, moving beyond the current three-year obligation. The second would introduce tiered reliability guarantees, where customers paying less could face power cuts first. The third option aims to shift PJM closer to a real-time market driven by supply and demand, while preserving some stability through long-term contracts.
None of these scenarios offer a clean solution. PJM’s current three-year market structure worked well when natural gas plants were replacing coal, but solar and battery projects can now be installed two to three times faster. Meanwhile, a shortage of natural gas turbines means new plants planned today may not receive equipment until the early 2030s, with prices skyrocketing due to demand from hyperscalers. Given these constraints, it is difficult to see suppliers embracing even longer commitments.
The second option risks dividing PJM’s territory and customers into groups of “haves” and “have-nots.” For households and businesses already burdened by rising utility bills, a downgraded service would be deeply unpopular. Politicians, who have seized on anti-data center sentiment and rising power costs, are unlikely to support such a plan.
The third approach is the most nuanced but also feels like an attempt to please everyone. It would allow large utilities like AEP to profit from short-term markets while benefiting from predictable long-term contracts,effectively having their cake and eating it too. Yet if AEP, one of PJM’s largest members, is not satisfied with the available options, it is hard to see how this path can succeed.
The convergence of soaring data center demand with the disruptive forces of renewables and cost-declining batteries has created a perfect storm for an organization that seems unwilling or unable to adapt. PJM may have hoped its white paper would buy time, but with politicians threatening price caps and major utilities reconsidering their participation, the grid operator may not have years to resolve these issues. The road ahead looks increasingly turbulent.
(Source: TechCrunch)
