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Utilities face challenges predicting future power demand

for

data centers

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Tech companies seek multiple bids, complicating demand

forecasts

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Rising costs and AI advancements may reduce future power

needs

By Laila Kearney, Seher Dareen

NEW YORK, April 7 (Reuters) - U.S. electric utilities

are fielding massive requests for new power capacity as Big Tech

scours the country for viable locations for new data centers to

keep up with the compute demands of AI.

A Reuters survey of 13 major U.S. electric utility earnings

transcripts found nearly half have received inquiries from data

center companies for volumes of power that would exceed their

peak demand or existing generation capacity - that's everything

they supply to homes and businesses - a metric that reflects the

sheer size of oncoming data center needs.

Now, the power industry is struggling with a question that will

determine the course of billions of dollars in investment: how

to meet the demand?

Utilities have announced billions of additional dollars in

capital spending already this year, with some doubling their

five-year investment plans.

If utilities underestimate the demand, they risk an unstable

electrical grid with a higher chance of blackouts for their

customers. If they overbuild, consumer rate-payers could end up

with the tab.

Complicating matters, tech companies are approaching

multiple power utility providers within the same state, or

across several states seeking multiple bids for the same

project, inflating power demand outlooks, investors and other

power experts said.

"What we're seeing is this huge proposed influx of these

abstract projects that nobody knows anything about," Jon Gordon,

a director at the clean energy trade group, Advanced Energy

United, whose members include clean power and large energy users

like data centers.

The size and secrecy of the inquiries are making it very

difficult for utilities to predict future demand.

"The data center process is to have a competitive bid from

three companies in many markets," said James Richmond, CEO of

e2Companies, an energy management system provider. "That

one-third, automatically, is going to win, and two-thirds is

going to drop out."

BIG DEMANDS

In one example, Sempra ( SRE ) said that its Texas power utility

subsidiary, Oncor Electric, which serves the Dallas area, has

received requests to connect an additional 119 gigawatts, which

is nearly four times the peak electricity use on its system.

Allentown, Pa.-based PPL said it had more than 50 GW

of data center requests, including at least 9 GW in advanced

stages of development, which is higher than its current

generation capacity of 7.2 GW.

Oncor said it only includes data centers in its spending

plan once it has signed agreements with the developer or

operator and has secured collateral in the form of a letter of

credit, an affiliate guarantee or cash.

"We believe these agreements help incentivize accurate

information sharing and the certainty of project planning,"

company spokesperson Kerri Dunn said.

A PPL spokesperson said the company only authorizes spending

on a particular project with an agreement in place.

In utility Evergy's ( EVRG ) territory in Kansas and Missouri, the

pipeline of additional demand driven by data centers has nearly

doubled to more than 11 GW late 2024, which is slightly more

than the maximum demand the utility's entire system is expected

to see at any one point in 2025.

States are beginning to take notice. As a way to gain

insight into the swelling demand forecasts, Pennsylvania is

considering creating a "clearinghouse" for data center power

requests, a representative from the Pennsylvania governor's

office said during a recent industry panel discussion.

"It's something that we're looking at pretty intensely,"

said Jacob Finkel, deputy secretary of policy for Governor Josh

Shapiro.

'RISK OF OVERBUILD'

Big Tech may also decide to abandon projects, which take

years to come to fruition, due to inflation, rising interest

rates, and scarce land.

In 2024, the cost for building a megawatt was nearly $12

million, according to multiple industry sources. But costs to

build out data centers have risen sharply since then, Richmond

said.

Growing capital costs, which may be intensified by tariffs on

materials such as steel imposed by U.S. President Donald Trump,

may also limit the amount utilities will be able to build to

meet demand, said Barclays' analyst Nick Campanella.

"There is risk of overbuild," he said.

In addition to rising costs, there are also signs the needs

of next-generation AI applications may be changing.

New AI models like DeepSeek promise to require less compute, and

therefore potentially far less electricity, by requiring a small

fraction of the chips that are currently being deployed in data

centers.

Fewer chips could mean less power and infrastructure needed

to support them, including the energy-guzzling cooling systems

that are among the main reasons why data centers use so much

energy.

TD Cowen analysts in recent weeks said Microsoft - among the

world's top spenders on AI data centers, with plans to invest

$80 billion this year - had pulled back from projects

representing 2 GW of electricity in the United States and Europe

in the last six months.