Electricity Demands Soar, Experts Weigh Tradeoffs Between Costs and Climate Goals
As New Jersey grapples with surging electricity demands from factors like data centers and electric vehicle adoption, state officials are navigating a complex landscape of grid capacity, energy costs, and environmental priorities. A recent legislative hearing in the state shed light on the challenges ahead.
Grid Operator Cautions Against Hasty Power Plant Closures
Jason Stanek, executive director of government services for PJM Interconnection, the regional grid operator, emphasized the need to carefully manage the retirement of power plants to avoid exacerbating rate impacts for consumers. “To minimize rate impacts, we would respectfully request avoiding any policies that are designed to push resources off the system before we have an equal and equivalent amount of replacement resources,” Stanek told lawmakers.
The state’s last two coal-fired power plants closed in 2022, and wind projects meant to boost generation capacity have faced cost and other hurdles. Stanek cautioned that swings in energy supply and demand can put significant pressure on electricity rates, noting that prices at PJM’s annual capacity auction surged nearly nine times higher than the previous year.
Data Centers Emerge as Major Electricity Consumers
Assemblyman Wayne DeAngelo (D-Mercer), who chaired the legislative hearing, highlighted the growing electricity demands driven by data centers, a trend accelerated by the rise of artificial intelligence (AI). “If you have a quick charging station, they use 100 amps. That’s the amount of power that’s in a small residential house,” DeAngelo said. “As we’re moving New Jersey across and increasing our bandwidth and the need for data — be mindful as AI is coming into the picture and becoming more prominent — one data center that they’re talking about building is going to need 800 (megawatts).”
That single data center would consume nearly a quarter of the electricity produced by the three nuclear power plants in South Jersey, which accounted for 43.5% of the state’s energy generation in 2022. The proliferation of data centers, coupled with the electrification of transportation and other sectors, is set to push New Jersey’s energy needs significantly higher in the coming years.
Balancing Renewable Energy Goals and Reliability
While New Jersey has ambitious goals to draw 100% of its power from renewable sources by 2035, some experts cautioned that these targets may not address immediate electricity needs. “We need to be moving towards that clean energy future, but we also need to be investing in some of the technologies of where we are today. There are technologies that can help out the use of natural gas, like carbon capture,” said Rich Henning, president and CEO of the New Jersey Utility Association.
The state’s transition to renewable energy will require careful planning and investment to ensure grid reliability. “Every morning, thousands of energy professionals turn to our newsletters for the day’s most important news,” said Christine Guhl-Sadovy, president of the Board of Public Utilities. “Growing electrification, increased uptake in electric vehicles and their charges, and surging demand for data centers spurred by a boom in artificial intelligence are set to push New Jersey’s energy needs up significantly.”
Regulatory Changes and Cost Mitigation Strategies
Experts at the hearing also discussed potential regulatory and policy changes that could help mitigate the impact of rising electricity costs. Brian Lipman, the state’s rate counsel, noted that amendments to federal rules to include more electric capacity in PJM auctions could push down rates. He also urged an end to legislative mandates that force utilities to invest in infrastructure, as these costs are typically passed on to ratepayers.
“We’re forcing them to invest, and they’re not doing that for free. They’re coming back and they’re seeking their money,” Lipman said, adding that new oversight of transmission could also help control costs. The state’s current regulatory framework allows utilities to earn a 9.6% return on every dollar invested, with those costs ultimately borne by consumers.
As New Jersey navigates the complex interplay of grid capacity, data center demands, renewable energy goals, and rate impacts, the state’s policymakers and utility leaders will need to find a balanced approach that addresses the needs of both businesses and residents. The hearing highlighted the urgent need for comprehensive, long-term planning to ensure a reliable and affordable energy future for the Garden State.
Exploring the Impact of Data Centers on the Grid
The growing presence of data centers has emerged as a significant factor in the discussion around New Jersey’s electricity landscape. These energy-intensive facilities have the potential to significantly strain the state’s grid and affect electricity prices for all consumers.
Directly Powering Data Centers from Nuclear Plants
One approach that has gained attention is the direct connection of data centers to nearby nuclear power plants, bypassing the broader grid. This model, exemplified by the deal between Amazon Web Services (AWS) and the Susquehanna nuclear plant in Pennsylvania, aims to provide a steady, carbon-free power supply to the data center.
However, this arrangement has sparked concerns from utility giants like Exelon and American Electric Power (AEP). They argue that the deal could shift up to $140 million in extra costs onto other customers in the PJM regional transmission organization, which includes New Jersey.
“They’re effectively going behind the meter and taking that capacity off of the grid that would otherwise serve all customers,” explained Tony Clark, a former commissioner at the Federal Energy Regulatory Commission (FERC). “There’s just a whole list of charges that get assessed through the network service that if you don’t connect through the network, you don’t have to pay. And those charges are the part of the bill that will go up for everyone else.”
Potential for Small Modular Reactors to Power Data Centers
As data centers continue to proliferate, some industry experts suggest that small modular reactors (SMRs) could emerge as a viable solution to power these energy-hungry facilities. SMRs are advanced nuclear reactors with much smaller operating capacities than conventional plants, potentially offering a more scalable and adaptable option.
“To me, it does seem like a space where, if big tech has a voracious electric power needs and they really want that 24/7, carbon-free power, nuclear does seem to be the answer,” said Clark. “They also have the balance sheets to be able to do some of the risk mitigation that might make it attractive to get an SMR up and running.”
The potential for SMRs to power data centers is being explored in various regions, including a recent agreement between Nano Nuclear Energy and Blockfusion to explore the possibility of powering a cryptomining facility in New York with microreactors, a specialized type of SMR.
Balancing Data Center Demands and Grid Reliability
As the demand for data centers continues to grow, grid operators and policymakers must grapple with the challenge of ensuring a reliable and equitable electricity system. The FERC’s recent rejection of the Talen Energy-AWS deal highlights the complex regulatory landscape surrounding these arrangements.
“There is a clear, bipartisan consensus that maintaining U.S. leadership in artificial intelligence (AI) is necessary to maintaining our national security,” said FERC chair Willie Phillips, who dissented from the majority ruling. “Maintaining our nation’s leadership in this ‘era-defining’ technology will require a massive and unprecedented investment in the data centers necessary to develop and operate those AI models. And make no mistake: access to reliable electricity is the lifeblood of those data centers.”
Striking the right balance between accommodating data center demands and preserving grid reliability and affordability for all consumers will be a critical challenge for New Jersey and other states in the years ahead.
Embracing an “All-of-the-Above” Approach to Energy
As New Jersey navigates the complex landscape of electricity supply, demand, and environmental goals, experts suggest that a diversified, “all-of-the-above” strategy may be the most effective path forward.
Maintaining Existing Power Sources Until Replacements Are Ready
One key recommendation from the legislative hearing was to avoid prematurely shutting down power plants before suitable replacement sources are operational. “To minimize rate impacts, we would respectfully request avoiding any policies that are designed to push resources off the system before we have an equal and equivalent amount of replacement resources,” said PJM’s Jason Stanek.
This approach recognizes the importance of maintaining grid reliability and preventing disruptive spikes in electricity prices as the state transitions to a cleaner energy future.
Investing in Emerging Technologies for the Long Term
While renewable energy sources like wind and solar are central to New Jersey’s long-term goals, experts also emphasized the need to invest in other technologies that can support the state’s energy needs in the near and medium term.
“We need to be moving towards that clean energy future, but we also need to be investing in some of the technologies of where we are today. There are technologies that can help out the use of natural gas, like carbon capture,” noted Rich Henning of the New Jersey Utility Association.
Technologies like carbon capture, utilization, and storage (CCUS) may play a crucial role in bridging the gap as the state works to scale up renewable energy sources and modernize its grid infrastructure.
Exploring the Potential of Small Modular Reactors
The potential for small modular reactors (SMRs) to power data centers and other energy-intensive facilities has also gained attention. These advanced nuclear technologies could provide a reliable, carbon-free energy source to support the state’s growing electricity demands.
“To me, it does seem like a space where, if big tech has a voracious electric power needs and they really want that 24/7, carbon-free power, nuclear does seem to be the answer,” said Tony Clark, a former FERC commissioner.
As New Jersey continues to chart its energy future, embracing a diverse portfolio of solutions – from maintaining existing power sources to investing in emerging technologies – may be the most prudent approach to ensuring a reliable, affordable, and sustainable electricity system.
Conclusion: Charting a Path Forward for New Jersey’s Energy Future
New Jersey’s energy landscape is undergoing a significant transformation, driven by the twin imperatives of meeting growing electricity demands and transitioning to a clean energy future. The recent legislative hearing on electricity prices highlighted the complexities and trade-offs that policymakers and utility leaders must navigate.
From the soaring demands of data centers and electric vehicles to the challenges of maintaining grid reliability amid the retirement of traditional power plants, the state faces a multifaceted set of challenges. Experts emphasized the need for a balanced, “all-of-the-above” approach that leverages a diverse array of energy solutions, both established and emerging.
As New Jersey continues to chart its path forward, it will be crucial to foster collaboration between industry, regulators, and the public to develop a comprehensive, long-term strategy. This strategy must address the immediate needs of ratepayers, the long-term goals of environmental sustainability, and the economic development opportunities presented by the state’s energy landscape.
By embracing innovative technologies, maintaining existing power sources until replacements are ready, and prioritizing grid reliability and affordability, New Jersey can position itself as a leader in the transition to a clean, resilient, and equitable energy future. The decisions made today will shape the state’s energy landscape for decades to come, underscoring the urgency and importance of the challenges at hand.
Through thoughtful policymaking, strategic investments, and a commitment to balancing the diverse needs of all stakeholders, New Jersey can navigate the complex energy landscape and deliver reliable, affordable, and sustainable electricity to its residents and businesses. The path forward may not be easy, but the state’s energy future depends on the actions taken today.
