Electricity demand is on the rise. A recent report from the Rhodium Group projects an annual average growth rate in demand for electricity of 1.5 to 2.3 percent in the 2020s and 2.0 to 2.2 percent in the early 2030s. This growth rate is a stark departure from the flat demand of recent decades — there haven’t been similar levels of growth since at least the 1990s. New AI data centers, electrification (e.g., electric vehicles), and clean energy manufacturing are all contributing to the expected increase. In response, several utilities serving data centers have begun to update their Integrated Resource Plans. While utilities are planning to procure more wind and solar in their IRP updates, the vast majority of new generation in these new plans or updates is expected to come from new unabated natural gas plants.
This new gas buildout conflicts with the underlying rationale of the climate goals that many large tech companies — especially those building new data centers — have set. Currently, the most common way to fulfill renewable energy matching commitments is through power purchase agreements (PPAs). Through a PPA, a tech company directly buys wind or solar from an independent developer or pays a utility to procure those renewables and act as a broker.
Google has already matched 100 percent of its annual electricity consumption with renewable energy resources via this form of accounting. However, due to a mismatch in energy availability (i.e., when renewables produce electricity) and location (i.e., renewables are often located far away from the resources that need electricity), annual matching does not displace or reduce the reliance on the baseload generation firm fossil fuel generation that is physically connected to data centers and other facilities.
Since annual matching does not sufficiently target high-emissions hours and locations for data center demand, Google set a new emissions reduction goal in 2020. They are now striving to procure 24/7 carbon-free energy by 2030. In other words, Google is aiming to procure clean energy to serve their demand with clean electricity every hour of every day instead of just matching their consumption. To meet this goal, Google will need to combine the emissions benefits of intermittent renewables like wind and solar and the firm supply of resources like natural gas by procuring local clean firm electricity sources like geothermal and advanced nuclear. Such clean firm sources are promising but are relatively nascent and more expensive. Utilities tend to be risk-averse and must serve their customers through least cost procurement—meaning that they generally tend to avoid less-tested, newer, clean firm technologies, which have not yet been scaled up to reduce costs and risk.
In the absence of clean firm technologies to meet new demand, Google recently partnered with NV Energy, a Nevada utility, to design a clean transition tariff (CTT). In May, NV Energy filed an application for Nevada’s Public Utility Commission, the government body that regulates the state’s utilities, to approve a CTT that would supply Google with power from a new, first-of-a-kind Fervo Energy geothermal plant. The CTT would be a rate structure available to any corporate customer with a monthly energy demand above 5 megawatts (MW). Existing customers could remain retail customers by transitioning to an Energy Supply Agreement (ESA). The ESA would be filed for approval at the same time that the new clean electricity resource would be submitted to the Utility Commission for approval in an IRP, unlike other past clean energy procurement structures.
Through the ESA, customers would pay a fixed price per megawatt hour (MWh) for all clean energy delivered from the resource on an hourly basis, and pay a variable rate when the company demand exceeds the energy provided by the clean energy resource, necessitating the company to use energy from the grid The fixed price would provide a revenue requirement per MWh to the clean energy resource and charge that price to the CTT customer. For example, NV Energy would sign a PPA to buy electricity from a new clean energy resource (like Fervo Energy’s geothermal plant) and sell it back to the CTT customer (e.g., Google) for a set rate. Because the CTT customer would be paying a fixed rate, it would be credited for the energy and generation capacity on its bills.
This structure allows the hourly matching that Google needs to reduce reliance on fossil fuels. In addition to helping Google meet its climate goals, hourly matching has been identified as a way to hasten broader grid decarbonization and scale development of firm clean dispatch technologies. Importantly, the CTT creates a new avenue for companies to play “venture capitalist,” helping to develop clean firm energy technologies without passing costs or risks on to utility ratepayers; typically, the cost burden of new power plants is absorbed by all the ratepayers (i.e., industrial, commercial, and residential) through an electricity rate increase approved by the state’s public utility commission.
In the spirit of speeding grid decarbonization across the country, the CTT wasn’t only designed to be used and filed in Nevada. Duke Energy and some of its major customers have announced that they plan to file Accelerating Clean Energy (ACE) tariffs, which would include a CTT, for approval by North Carolina and South Carolina’s utility commissions. The ACE tariffs are intended to facilitate onsite generation for customer facilities, participation in load flexibility programs, and investment in clean energy resources.
In a relatively short period of time, CTTs and ACE tariffs have creatively established a new regulatory pathway to progress promising early-mover clean firm power generation. It is not hard to envision how these tariffs could help companies and their utility partners to deploy, scale, and incorporate other new clean firm technologies like advanced nuclear or even more established clean technologies like offshore and onshore wind or large solar projects coupled with energy storage.
They may not be a silver bullet, but they certainly can help to preserve and accelerate power sector emission reduction progress. However, they could allow companies and their utility partners to deploy, scale, and incorporate clean firm technologies into resource planning in coming years—hopefully reducing emissions from new demand while driving grid decarbonization into the future.
