DENVER — Prospects of load growth driven by electrification and artificial intelligence have buoyed utility stocks in recent months, but attendees at Yes Energy’s annual summit March 5-7 questioned how much of the load will materialize and warned of the potential for stranded assets.

Independent consultant Evan Bixby, former vice president of strategy and analytics for Pine Gate Renewables, called for more transparency on potential loads.

“Right now, it’s really a black box,” he said during an EMPOWER 25 panel discussion March 6 on power market dynamics impacting asset development.

“Where is this load going to be? How large is it going to be? … How is it actually going to participate in the market?” he said. “Whether it’s crypto, [data center] hyper-scalers, industrial facilities … they all participate in very different ways.”

Bill Thomas, chief energy officer for CleanArc Data Centers, said the prototype data center envisioned in his company’s 2021 business plan — which assumed only a migration to cloud computing — was to serve 24 MW of critical information technology. As a result of increased demand from AI, the company’s first data center, due to go online in Virginia in 2027, will serve 134.4 MW of IT demand.

“The market has completely taken off, to a point now where it’s unreasonable and unsustainable in a lot of ways,” he said during a conversation with Isaac Velander, Yes Energy’s chief product officer.

The 15 states that make up 80% of expected load growth from data centers are not ready for the increased demand, Thomas said.

“No chance,” he said. “It’s somewhat akin to what happened during the early California [renewable portfolio standard] days … and they had to kind of revamp the way that they were thinking about that generator interconnection queue. And they came up with standards and rules, and everything was transparent, and it was auditable, and there were milestones and performance requirements. That doesn’t exist on the load side. … It’s basically been, ‘Hey, I need 5 MW, do you have a circuit for me?’ And utilities would say, ‘Yeah, sure, great. More retail load. Awesome. Let’s do it now.’

“They’re trying to figure out how to do this and how to do it fairly. The reality is that there’s no roadmap and there’s no standardization in it, so the utilities are really struggling to keep up.”

Thomas also questioned whether natural gas generation will benefit as much as believed from the data center boom.

“Natural gas has become all the rage in data center world, and there’s a lot of people that are going around talking about it. But there’s not a lot of people who are going around actually providing solutions to data center operators with natural gas,” he said. “I talked to the large [original equipment manufacturers] that make the machines — the gas reciprocating engines and turbines — and they’re not seeing the demand actually hit their order books. They’re hearing the noise. They have channel partners flittering all around the world, proclaiming to be selling gigawatts of this stuff, but it really hasn’t happened yet.”

Thomas said his company won’t rely on centralized gas plants for backup. “We want to have our redundant generators, which are redundant on a one-for-one megawatt — actually more than that — basis behind the meter; we want to use gas reciprocating engines instead of tier 2 or tier 4 diesel engines.”

Thomas said a 600-MW data center could consume 200,000 dekatherms of gas daily. “Now, we’re not going to do that forever, but we might do it for a couple of years. And so the infrastructure required to get that gas to our facility, and then our ability to actually get those molecules, is going to be critical, and it’s going to weigh on the gas system as well.”

Peter Kelly-Detwiler, co-founder of NorthBridge Energy Partners, warned that utilities building generation to serve AI data center loads could be left with stranded assets if the number of AI players shrinks over time, as happened with search engines in the dotcom boom.

“We all know there were a whole bunch of claimants to the throne of search engine, and eventually, only one of them made it to the top,” he said in his keynote address. “And if you don’t believe me, you can go ‘Ask Jeeves.’ …

“There will be carcasses on the road” among the current AI competitors, he added. “And the question then is, do the other players in the space buy up those data centers, or does something else happen?”

He said the longest contracts for AI data centers are for 10 to 12 years after a four-year “ramp” period.

“And then there’s no commitment after that. If the company exits the scene, they pay an exit fee, assuming they still have the capital to do it. So you have this 30- to 40-year time frame for your supply assets, and you have a four-year ramp and then a 12-year temporal period for your contracts. So we have this really significant potential mismatch between load and the … supply resources. … Woe to the utility that builds all this stuff, and then somebody goes away.”

Kelly-Detwiler said it’s too soon to know whether the current load projections are a new bubble. “But we’ve gotten this wrong before,” he said. “Our forecasts in the past, for years and years and years, have suggested we were going to have a much larger power grid than we had today, and then efficiencies kick in.”

He also warned there are likely “phantom” load applications, just as generation developers file more interconnection requests than they expect to complete. A bill introduced in the Texas Senate would require data center applicants to divulge where else they’re also seeking power.

“I wager a year from now, we have a different conversation. Because really, the data center conversation is only two years old,” he said. “As a utility industry, I would argue that we’re sitting in a situation which is one of the riskiest we’ve ever had in terms of capital allocations and the possibility for stranded assets.”

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