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Data centers increase reliance on fossil fuels, delaying

transition to clean energy

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Utilities add gas plants, delay retirements to meet

data-center

demand

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Data companies' green pledges fall short, rely on existing

clean

power

By Valerie Volcovici, Laila Kearney

BAKU, Azerbaijan/NEW YORK, Nov 21 (Reuters) - A spike in

electricity demand from the world's big data providers is

raising a worrying possibility for the world's climate: a

near-term surge in fossil-fuel use.

Utilities, power regulators and researchers in a half-dozen

countries told Reuters the surprising growth in power demand

driven by the rise of artificial intelligence and cloud

computing is being met in the near-term by fossil fuels like

natural gas, and even coal, because the pace of clean-energy

deployments is moving too slowly to keep up.

In the United States, home to a third of world data centers,

utilities are adding new gas plants and delaying the retirements

of fossil-fuel power plants as a slew of sprawling new data

centers plug in to the grid. In Poland, Germany and Malaysia,

coal could also be in the mix, according to interviews with

company executives, regulators and analysts.

The outlook poses a new obstacle to world governments, now

gathered at the UN's annual climate conference in Baku, which

are already struggling to meet ambitious targets to decarbonize

power systems.

COP29 host Azerbaijan held the first-ever Digitalization Day

at a world climate summit and launched a declaration, endorsed

so far by 68 countries including China and Korea, to limit the

environmental impact of digitalization.

The outlook also reveals the shortcomings of data-company

pledges to be green. Companies including Meta Platforms ( META )

, Microsoft ( MSFT ) and Amazon.com ( AMZN ) are

committing to sourcing renewable energy and zeroing out

emissions with clean power and offset credits - but often that

only means siphoning clean power out of the grid that could have

been used somewhere else.

Meanwhile, agreements by data providers to power new data

centers with advanced nuclear reactors or resurrected nuclear

plants are uncertain and years off.

"I think everyone agrees that we need more and more

renewable energy to keep up with a growing demand," said Meta

spokesman Jim Cullinan. "I think it is up to the utilities to

comment on how they will fill the supply."

Amazon ( AMZN ) told Reuters that investing in new renewable energy

for the grid, including in regions relying heavily on fossil

fuels, is part of its strategy to decarbonize.

Investment bank Morgan Stanley projects the global

data-center industry will produce around 2.5 billion metric tons

of carbon dioxide-equivalent through the end of the decade, the

equivalent of Russia's annual emissions.

PUMPING THE GAS

Northern Virginia in the U.S. has the biggest concentration

of data centers in the world. Utility Dominion, which

serves the area, has an answer: gas.

The utility is building a 1,000-megawatt gas plant in

Chesterfield County and recently slashed its 15-year projection

for renewables to 80% from 95% of its power mix.

"Overall, power demand in our service territory is growing

at an unprecedented pace," said spokesman Aaron Ruby.

Several other U.S. utilities said they are keeping on

fossil-fired power plants longer and building new facilities as

data-center demand grows, according to a Reuters review of

recent company earnings calls.

Entergy ( ETR ), for example, began building its first

natural gas-fired power plant in a half-century, the company

said. The 754-MW power station will serve two Amazon ( AMZN ) data-center

complexes being built in Mississippi.

Nearly half of utility NiSource's ( NI ) new $19.3 billion

capital expenditure plan through 2029, meanwhile, will be spent

on natural gas system improvements, the company said. NiSource ( NI )

covers some of the most quickly developing data center markets

in parts of Indiana, Ohio and Virginia.

Rob Thummel, senior portfolio manager at Tortoise Capital,

said natural gas is a clear answer for data centers.

"It's just the lowest cost, most reliable and it is

decarbonizing in terms of it replacing coal," he said. "Is it

perfect solution? No. But I don't know if we have a perfect

solution to power these data centers."

S&P said data centers could add between 3 billion and 6 billion

cubic feet per day to U.S. natural gas demand by the end of the

decade.

That will worsen the U.S. performance on emissions, possibly

for decades, clean-energy consultancy RMI said.

"Data centers are just a warm-up act compared to the amount

of electrification we're going to have going forward. And if our

first instinct is to start building gas plants and nuclear

plants in order to do that, we're just going to create an energy

system we cannot afford," RMI CEO Jon Creyts said.

President-elect Donald Trump has said he intends to boost the

U.S. power system when he takes office, and sources close to his

transition team have said his plans are likely to prioritize gas

development over renewables.

COAL IN THE MIX?

Research firm McKinsey said in a report last month most of

the increase in data-center power consumption in the European

Union by 2030 will be supplied low-carbon sources.

McKinsey declined to elaborate when asked whether low-carbon

sources included natural gas, and whether the trend could

prolong the life of coal.

In some parts of Europe, data centers will need coal.

In Poland, for example, a rush of new datacenter projects

will need to run at least partially off baseload sources like

coal because of the still-low volume of renewables in the

country, according to Szymon Kowalski, deputy head of Re-Source

Poland, a platform for corporate renewable energy sourcing.

The share of coal in Poland's energy mix has been falling

for years as it ramps up renewables, but still stood above 60%

in 2023, according to the International Energy Agency.

In Ireland, meanwhile, data centers now account for over 20%

of electricity consumption, according to the IEA.

System operator EirGrid told Reuters it will meet demand

with 650 MW of temporary emergency generation capacity, and by

delaying the retirement of older generators. It said natural gas

would be an important part of the mix.

Ireland's only coal station, ESB Group's 915 MW Moneypoint

plant, extended its retirement date last year to 2029 from 2025,

but intends to burn fuel oil instead of coal during that period.

In Germany, Microsoft ( MSFT ) this year announced plans to expand

data-center capacity with a 3.2 billion euro ($3.38 billion)

investment, near the 400-meter-deep Hambach coal mine.

Microsoft ( MSFT ) declined to say whether the project would rely on

coal. "We are still in an early stage of the project, that's why

we do not comment," spokesperson Jo Klein said.

In Malaysia, some data companies are taking power from the

coal and gas-dominated grid instead of paying a premium for

renewables, according to a government official familiar with the

matter. Less than 50% of the green power Malaysia has sought to

auction this year has been purchased, the official said.

($1 = 0.9467 euro)