The growing partnership between traditional utilities and giant technology companies (hyperscalers)
In the rapidly evolving energy landscape, utilities and hyperscalers are facing shared challenges of unprecedented load growth and grid constraints. Bob Frenzel, President and CEO of Xcel Energy, headquartered in Minnesota, addressed this complex relationship during a recent address.
Frenzel compared the shift in mindset required to the quote "skate to where the puck is going to be" by hockey player Wayne Gretzky. He suggested that utilities need to build for growth, a concept that the industry has not had to do for a long time. This new approach means investing in infrastructure even before customers have come forward with new loads.
Caroline Choi, Southern California Edison's executive vice president, echoed Frenzel's sentiments, mentioning rulemaking at the state level as a factor in expected load growth. The utility industry has historically been risk-averse in decision-making, but utilities are now adapting to a more proactive approach to planning due to the uncertainty of new load growth.
One friction point involves load speculation, where data center developers flood utilities with speculative power requests that may never materialize. To address this challenge, companies like Siemens Energy have built specialized teams within their organization for large electricity grid projects. They focus on modern security concepts for new "power highways" as part of the energy transition.
Better cooperation and transparency between utilities and hyperscalers can help address these challenges. Utilities can benefit from the resources and expertise of hyperscalers, such as access to transformers, turbines, and regulatory filing assistance. However, Frenzel noted that utilities have limited energy industry talent and key materials, leading to competition with hyperscalers for equipment and talent.
The utility industry is also facing competition from hyperscalers, who have recently emerged as dominant energy stakeholders. Load growth in the United States is expected due to the artificial intelligence boom, electrification, and the onshoring of manufacturing. Xcel Energy, for instance, has a 9,000-megawatt backlog of data centers, with plans to serve only 2,500 due to uncertainty about what will locate in other parts of the country.
Ken Zagzebski, President of AES Utilities and CEO of AES Indiana and AES Ohio, believes that the competitive strain between utilities and hyperscalers can be productive, even in the workforce. As the energy landscape continues to evolve, it is clear that utilities and hyperscalers will need to work together to navigate this new terrain.
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