It may be almost impossible to make data centers pay their ‘fair share’ of electricity costs
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How much your electricity costs depends on some seriously complicated calculations.<br>AP Photo/Carolyn Kaster
https://theconversation.com/it-may-be-almost-impossible-to-make-data-centers-pay-their-fair-share-of-electricity-costs-283946
https://theconversation.com/it-may-be-almost-impossible-to-make-data-centers-pay-their-fair-share-of-electricity-costs-283946
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Many major tech companies have pledged to pay their fair share of the costs associated with generating and transmitting more electricity to serve large data centers. But ratepayers across the United States are worried about the potential costs they might have to bear. That’s because it’s not immediately clear how the cost of data centers’ energy will be calculated. The effects of price increases are likely just beginning, and their full effects may not be felt for years.
For example, a recent report by the organization that monitors the PJM market, an area that encompasses all or part of 14 mid-Atlantic and Midwest states, concluded that expected power demand from data centers was a primary reason for US$23 billion in customer price increases that will last until at least the end of 2028.
I have studied the programs states have launched to address the needs of these large electricity customers. Prices are set by state utility commissions, who determine which customers’ rates will increase by how much to pay for new investments in electricity infrastructure. It’s not simple.
Someone has to pay for substations and other electricity transmission equipment – but who, and how much?<br>Joe Raedle/Getty Images
The complexity of setting prices
Setting a price for electricity is straightforward in principle but complicated in execution. Regulators identify the costs to provide service, allocate the costs to customers and design prices to recover those costs.
First, regulators identify the costs that a utility company incurs to provide service. Regulators look at the value of the assets the utility company invests in, such as power plants, transmission lines and substations, as well as its day-to-day operating expenses, such as salaries, fuel, replacement parts and electricity it purchases from other sources. Then these costs are allocated to categories of customers, such as residential, commercial and industrial.
Ideally, costs are allocated to the customers who cause them, but that can be complicated to determine. For example, imagine a data center is built in an area that lacks existing power lines and is located 50 yards from a nearby electric substation. It’s clear that the data center should pay to run a 50-yard power line from the substation to the data center.
But what if the power company needs to upgrade the substation to handle the increased needs of the data center? Or secure additional sources of electricity? In these cases, the investments are part of the electricity grid that everyone uses. These costs will likely be shared among all customers.
Cost analysts review each line of a utility company’s costs, often thousands of items, and determine how each cost will be allocated. Each decision incorporates one basic idea: What’s your share?
For instance, if a group of customers uses 20% of the electricity delivered by the utility, they would be allocated 20% of the costs associated with energy delivery. Other cost items may be allocated based on the number of customers or how much electricity customers use at particular points in time, but the idea is the same.
Finally, the analysts set prices that are designed to recover the costs allocated to each customer group. So, the costs that are allocated to you are directly reflected in the electricity prices that you pay.
Flexibility and a potential loophole
One common criterion for figuring out how much a customer should pay is based on what is called “coincident peak demand” – the amount a customer group uses at the moment when all customers are collectively using the largest amount of electricity. Costs associated with overall peak usage are typically split proportionally – but this opens an opportunity for data centers to exploit the system.
Data centers often are able to fine-tune their electricity consumption, using more one minute and less another, in ways that residential users can’t easily replicate. Computerized systems can automatically adjust the amount of work a data center is doing, while a homeowner would either have to race around shutting off appliances to meaningfully reduce the amount of power their home was using or invest in a device that does.
Their flexibility means data centers may be able to learn to predict when system loads will peak and consume little to no power in just the right period to avoid contributing to peak...