Data centers challenge energy markets, perceptions

Data center proliferation lies at the confluence of technology, energy and image. Answering questions about this new industry can go a long way toward helping county officials grasp what will only be more imperative going forward.

Though Loudoun County, Va. has experienced dense data center growth over the past three decades, for the rest of the country, the concept of a large, sparely staffed building that puts demands on utilities is newer than the novel coronavirus. 

“I think it’s important for people to understand that this is a new industry,”
said Kevin Gundersen, head of public affairs for Digital Realty during a Feb. 23 summit on data centers. “Our company is 25 years old. I just came from a 50-year-old company,” in the chemical engineering industry that has firms nearly three times as old. “There’s an industry arms race trying to build up this next stage of critical infrastructure.”

Governments on the local, state and federal levels have moved quickly to adjust to the needs and potential that this computing power presents. Chief among them, the demand for electricity, both to power thousands of servers and in many cases, cool them. In 2025, the Trump administration debuted the National Energy Dominance Council to develop policy recommendations from a cross-section of federal agencies for maximizing domestic energy output. Energy demand and its consequences on rates have become a priority issue across the country, with worries abounding about rate increases, rolling blackouts and brownouts to manage demand.

“When it comes to power grids, reliability is always first,” said Peter Lake, senior director for power on the National Energy Dominance Council. “Affordability is a close second.”

Catherine Jereza, assistant secretary for the Office of Electricity at the Department of Energy, sees data centers as a potential net positive for energy prices.

“We think that data centers can be good for the grid. It’s a large load, that large scale brings the opportunity to reduce costs over the long haul, because when you have a large, steady load… if we can look to level that out a little bit with the data centers, then that can help with reducing the costs over the long term,” she said. 

In January, a bipartisan group of 13 Mid-Atlantic governors signed an agreement with PJM Interconnection, which operates the largest wholesale electricity market, to extend its capacity market price cap through 2030 and develop $15 billion in new power generation projects. That will insulate ratepayers from rising demand by data centers for electricity, which is necessary for both operation and cooling. 

“Not only was the court tenet of this unprecedented deal, that we will build big infrastructure in America again,” Jereza said. “We will build the baseline power that we need to meet this economic growth, not only from data centers, but from manufacturing, reindustrialization of America. But because these technology companies are paying, or driving so much of that demand, they are very supportive of making sure they pay their fair share. 

“I think it’s very fair if a tech company or a data center, developer, comes to your local territory, points to that PJM deal that the president laid out, and says ‘We expect you to meet those same standards.’”

It’s an approach favored by Tony Clark, executive director of the National Association of Regulatory Utility Commissioners and a former chairman of the Federal Energy Regulatory Commission (FERC), as other energy markets face the same demands.

Policy recommendations for managing the power demand are specific to different regions, given the variety of ways resource authority is vested in different states.

“FERC jurisdictional markets are incredibly complex, getting into a particular docket, a case in front of FERC, can be one of those in-for-a-penny-in-for-a-pound sorts of things. It can be very difficult for any individual, local government to get involved with,” Clark said. 

“I think by banding together, with your governors, with your state public utility commissions and others, you can have a real impact in some of those markets.” 

Blank slates

As communities in many states face debates over land use regulations allowing data center development, Gunderson said data centers are only now starting to face a skeptical audience and articulate their function.

“A data center is the physical manifestation of all these [internet-based] things that we use,” he said. “That could be a hospital system in Atlanta, that we serve that allows real-time x-ray imaging, real-time MRI  for people that are coming to emergency rooms.”

“Every day, the more people who use these apps and AI tools…I think the demand is only going to go up.” 

As an alternative cooling method for computer servers, water can cut power demands, but that viability likewise varies by region and plentifulness of fresh water.

“The vast majority out there have some sort of plan and some sort of methodology for evaluating any kind of new large water user,” said Adam Carpenter, manager of Energy and Environmental Policy for the American Water Works Association.

“One of the good things is that for data centers, specifically, there are a huge array of different cooling technologies out there, and they’re rapidly changing over time.”

Marissa Mitrovich, vice president of Public Policy for the Fiber Broadband Association, noted that in addition to the tax revenue generated by data centers, the investment necessary to support their operations could offer helpful byproducts to the host communities.

“With the deployment of all this fiber, and with these data centers being built, people stand to benefit quite a bit, and we see a lot of economic growth opportunity well beyond just the actual data center itself, but through the connectivity,” she said, estimating that each hyperscale center will include 328,000 fiber miles.

“The more fiber deployed, the more fiber being taken advantage of, is good for communities.” 

Lake noted that county governments hold the ultimate power in mitigating externalities from data centers, but it’s best exercised in coordination with other local governments. 

“A lot of the regulatory action happens at the state and local level, interstate utility commissions, at the local county commission level, the municipal level,” he said. “While the mechanisms are often at the state or county level, we’re trying very hard to establish a nationwide framework of a standard that you all should expect from the data centers and the technology companies and hold them to that standard. At the end of the day, you all are the ones that are in charge of your own jurisdictions, and your own home turf. So, leverage that.”