Data centers want to tap existing nuclear power. Is that good or bad?

Across the U.S. East Coast, nuclear power plant owners are proposing marriages to tech giants who are both desperate for electricity to fuel their massive data-center expansion plans and publicly committed to using clean energy. The proposals go like this: Build data centers that connect directly to our round-the-clock, carbon-free nuclear power, and secure long-term financial and clean-energy benefits for the both of us.

The companies looking to tie the knot say these are matches made in heaven. But a growing number of critics are objecting at the altar.

The first such announcement came in March, when Amazon Web Services agreed to spend $650 million to buy an existing 960 megawatt data center campus that’s already hooked up to Talen Energy’s 2.5 gigawatt Susquehanna nuclear power plant in northeastern Pennsylvania. Several similar proposals are in the works, with nuclear power plant owners Constellation Energy, Vistra, Dominion Energy, and Public Service Enterprise Group eyeing prospects, according to company statements and analyst reports.

Nuclear energy and tech company trade groups say these ​“colocation” projects will bring stability to a nuclear industry that provides the country’s largest share of zero-carbon energy. By allowing data centers to circumvent the overtaxed U.S. grid and get online faster, these linkups will also bolster U.S. competitiveness in artificial intelligence and other high-tech fields, they say, positioning the deals as a partial solution to the problem of meeting fast-rising electricity demand from industrial customers.

“Co-location with a nuclear plant offers potential benefits including the rapid deployment of these new businesses, reducing the pressure of building out additional transmission capacity, and ensuring that the integration costs are concentrated on the data center owner and not spread to other electricity users,” Matt Crozat, executive director of strategy and policy development for the Nuclear Energy Institute trade group, told Canary Media in an email.

But these claims face mounting scrutiny from energy analysts and climate advocates, who fear that a rush to divert existing zero-carbon nuclear energy to power-hungry data centers could end up raising ratepayer bills, reducing grid reliability, and increasing power sector emissions overall.

Those are the risks outlined in a July blog post by Jackson Morris, director of state power sector policy at the Natural Resources Defense Council. ​“We’re not anti–data center and anti–load growth,” Morris told Canary Media. ​“But we want to make sure that actions being taken don’t lead to negative impacts in terms of emissions reductions or costs to consumers.”

Lawmakers and regulators in Connecticut, Maryland, New Jersey, and Pennsylvania are raising similar concerns.

In Maryland, a proposed amendment to a broader utility regulatory reform bill would limit colocation at Constellation Energy’s Calvert Cliffs nuclear plant. In Connecticut, lawmakers leery of a plan to colocate a data center at Dominion Energy’s Millstone nuclear power plant, the source of 90 percent of the state’s carbon-free power, are considering ending incentives to draw data centers to the state.

The Federal Energy Regulatory Commission is also taking a closer look at these potential impacts. Earlier this month, FERC ordered further study of the interconnection agreement that would allow the Amazon-Talen project in Pennsylvania to move forward. The decision came after utilities Exelon and American Electric Power protested that the agreement could shift up to $140 million in costs per year onto customers served by mid-Atlantic regional grid operator PJM.

Beyond these cost and reliability threats, the potential climate impact of such deals is a concern, Morris said. When a new data center comes online, new electricity generation has to be built — either to support the facility directly or to plug the massive hole created when the data center siphons off electricity from an existing power source.

Unless those data center owners can build enough clean energy to make up that gap, that replacement power will largely come from existing fossil-fueled power plants. ​“When you flip that switch on a nuclear power plant, it’s being backfilled by gas in the near term,” he said.

Far better, Morris argued, would be for data center operators like Amazon, Google, Meta, and Microsoft to accelerate their already big renewable energy purchases, and to invest more heavily in batteries, geothermal power, and other emerging sources of round-the-clock carbon-free power.

“The solution is to be more proactive and enter into agreements to the maximum extent possible with additional new clean resources,” he said. But he also conceded that ​“that’s easier said than done.”

The counterargument for marrying data centers and nuclear power

Data center developers are in definite agreement on that last point. Their efforts to expand procurement of new solar, wind, and battery resources across the country are running into a familiar challenge: There’s not enough room on the grid to bring the new projects online.

Across the country, clean energy projects face yearslong wait times to connect to transmission grids. Similar bottlenecks in grid capacity are making it harder and harder for data centers to obtain the power they need.

Amazon has led the pack of corporate clean energy purchasers, with 8.8 gigawatts of power purchase agreements in 2023 alone, bringing its total clean energy portfolio to 33.6 gigawatts. But it is also seeking to supplement its wind and solar projects with ​“new innovations and technologies, and investing in other sources of carbon-free energy,” a company spokesperson said in a statement to Canary Media. ​“Our agreement with Talen Energy for carbon-free energy is one project in that effort.”

In that sense, Amazon’s deal with Talen represents a practical way to keep building data centers, a task fundamental to the firm’s revenue growth, despite the challenging environment for bringing new clean power online. That’s the perspective offered by Rich Powell, chief executive officer of the Clean Energy Buyers Association, a trade group representing corporations including Amazon, Google, Meta, and Microsoft.

And while the data center being built at the Susquehanna nuclear plant will be powered by zero-carbon electricity, Amazon isn’t saying that any of that power is new. ​“They are not claiming this transaction is additional,” Powell said, using a term of art for clean power being built in excess of what would have been brought online without corporate commitments to buy the power they generate — an important concept for adjudicating corporations’ clean energy claims.

Meanwhile, Amazon is ​“also building an enormous amount of renewable energy, everywhere they can,” Powell said. These underlying facts should shift the discussion about nuclear power plant colocation and corporate clean energy targets, he argued. ​“It’s not additional, but is it good? Is it better than the alternative?”

And on that point, Powell isn’t sure another true zero-carbon option existed.

“What could they have done that was zero-emissions, that was available this year, that was 500 megawatts, operating 24/7/365?” he asked. ​“That’s literally impossible to do in a footprint of this scale with wind and solar and storage.”

Instead, the likeliest alternative for Amazon’s new data center would have been to plug into the grid — if it could — and accept the mix of power that was available. In Pennsylvania, which is part of the regional grid managed by PJM, electricity mostly comes from fossil gas and coal plants. In many regions, plans to plug new data centers right into the grid are triggering utilities to propose building new fossil-gas-fired power plants.

Tech companies are striving to expand their options to source cleaner power, Powell noted, by working with utilities to enable data center operators to invest in more clean energy and battery storage.

These companies are also pursuing emerging ​“clean firm options,” Powell said. He cited the proposal from utility Duke Energy to structure utility rates that would allow companies including Amazon, Google, and Microsoft to source round-the-clock zero-carbon energy from new resources such as long-duration energy storage and modular nuclear reactors, as well as Google and Nevada utility NV Energy’s proposed ​“Clean Transition Tariff” to support the tech giant’s goal of 24/7 clean energy by 2030.

But colocating with existing nuclear power is also a solid way to source clean power, Powell said — and one that could help the resource remain economically competitive in the face of increasingly cheap fossil-gas-fired power and even cheaper renewable energy. Since 2013, 12 U.S. nuclear plants have shuttered, and more face upcoming federal relicensing processes that will scrutinize their financial sustainability.

Commitments from data centers could not only help those power plants but also provide long-term market signals to utilities and power plant developers to invest in expanding the existing nuclear fleet, Powell said.

“If a portion of this nuclear power is taken up by the data centers and that helps save these plants in the long run, and sends a signal that new clean firm is really valuable to the market and that it’s better than doing an on-site gas plant, … I think it might be the best of the actual available options right now.”

Amazon echoed that line of thinking in its statement to Canary Media, saying that its agreement with Talen ​“ensures that the nuclear plant has stable long-term revenues to continue generating clean power for the foreseeable future.”

Do nuclear power plants even need data centers to rescue them? 

Colocation critics are skeptical of these arguments, however. They say the industry’s struggles over the past decade appear to be, at least for now, in the rearview mirror.

“If we were having this conversation in 2015, we’d be approaching it in an entirely different fashion,” Morris said. Back then, a number of nuclear power plants were facing the threat of imminent closure due to low energy and capacity prices for the power and reliability they deliver to the grid. But a confluence of state incentives, federal tax credits, and shifting energy-market conditions have dramatically altered those equations.

Starting in 2017, states including Connecticut, Illinois, New Jersey, and New York have passed laws that offer nuclear power plants zero-carbon energy credits, or ZECs, that have helped bolster their financial viability. And the 2022 Inflation Reduction Act created nuclear power production tax credits that can cover the gap between the cost of the power they produce and the revenues they can earn from selling it in energy markets.

“Once you add those in, we’re in a totally different world than we were 10 years ago, in terms of transactions necessary to maintain the existing nuclear fleet,” Morris said. NRDC has proposed that the U.S. Treasury Department should deny tax-credit eligibility to nuclear power plants that shift power to data centers or other colocated facilities, on the grounds that taxpayers shouldn’t subsidize corporate power purchases.

Crozat of the Nuclear Energy Institute pushed back against this stance. He noted that the Inflation Reduction Act’s nuclear production tax credits are designed to ​“ratchet down if revenues to the nuclear plant increase,” whether from sales to the grid or to colocated customers, meaning that they won’t apply in the case of a deal like Amazon’s. Illinois’ and New Jersey’s ZEC programs are also designed to reduce their value as plant revenues increase, he said.

But Jesse Jenkins, head of Princeton University’s Zero Lab and an expert on carbon and energy modeling, noted that states with ZEC policies aren’t just worried about the cost of subsidizing nuclear facilities; they’re also concerned about losing the vital zero-carbon electricity those plants provide to their grids to support their clean energy targets.

“As a New Jersey ratepayer, I’m already paying for the zero-emissions certificates for the three reactors in New Jersey,” he said. Those payments were meant to retain a zero-carbon resource that’s vital for meeting the state’s goal of 100 percent clean energy by 2035. ​“If they’re taking away those assets from the ratepayers, that will set that effort behind.”

Who pays for the grid when nuclear power leaves it? 

Crozat also highlighted that colocating data centers and other large power-using customers at nuclear power plants can significantly reduce the cost of building the grid infrastructure to support them, citing a study commissioned by the Nuclear Energy Institute and conducted by Michael Kormos, former PJM chief operations officer. What’s more, it shifts the remaining costs from ratepayers to the data center or other commercial customers locating ​“behind the meter” at the nuclear plant.

But whether those cost savings will make up for the potential cost increases that could come from pulling nuclear power off the grid is a thornier question, said Tyler Norris, a former vice president of solar developer Cypress Creek Renewables and a doctoral student at Duke University.

“When you reduce the output of an existing facility, you could have meaningful network impacts,” Norris said, such as imbalances in power flows across the transmission system that could require costly upgrades. ​“You’ve got to run the analysis — and if there are impacts, they absolutely ought to be allocated to the cost causer,” in this case the data center or other large industrial customer.

That’s the issue that Exelon and American Electric Power raised in their protest against the Amazon-Talen deal now under consideration at FERC.

“Users of the grid should pay their fair share,” Calvin Butler, Exelon president and CEO, said during the company’s August 1 earnings call. ​“While there may be unique opportunities to leverage land and equipment at generation plants to get data centers online quickly, they are still connected to the grid and are benefiting from a host of services that the grid provides.”

At the very least, Jenkins said, large-scale data center colocation plans must be carefully reviewed before they’re approved in order to ensure those potential harms are mitigated. ​“If they’re mostly focused on these sites because they have large interconnections sitting next to generators with high uptime, that’s a legitimate reason to look at these sites — as long as they’re not shifting costs onto other consumers by doing so.”

FERC appears ready to take on these questions. In an announcement on the same day that it ordered additional information on the Amazon-Talen interconnection request, the regulator announced plans to hold a technical conference this fall to ​“discuss generic issues related to the co-location of large loads at generating facilities.”

While FERC provided few details on the scope of the conference, industry watchers see it as an indication that the agency is seeking to explore the implications its decision on the first-of-its-kind Talen-Amazon project could have on future colocation activity — and as a ​“step in the right direction,” per Morris.

Talen Energy declined to comment for this story. But in a statement released after FERC’s decision earlier this month, the company stated that it intends to ​“fully participate” in the FERC conference, but offered a warning: ​“The broader issues need to be decided quickly, as delay will chill investment and growth in an important sector of the modern economy.”