Amazon’s $650M Data Center Faces Energy Battle

When Amazon Web Services paid US $650 million in March for another data center to add to its armada, the tech giant thought it was buying a steady supply of nuclear energy to power it, too. The Susquehanna Steam Electric Station outside of Berick, Pennsylvania, which generates 2.5 gigawatts of nuclear energy, sits adjacent to the humming data center and had been directly powering it since the center opened in 2023.

After striking the deal, Amazon wanted to change the terms of its original agreement to buy 180 megawatts of additional power directly from the nuclear plant. Susquehanna agreed to sell it. But third parties weren’t happy about that, and their deal has become bogged down in a regulatory battle that will likely set a precedent for data centers, cryptocurrency mining operations, and other computing facilities with voracious appetites for clean electricity.

Putting a data center right next to a power plant so that it can draw electricity from it directly, rather than from the grid, is becoming more common as data centers seek out cheap, steady, carbon-free power. Proposals for co-locating data centers next to nuclear power have popped up in New Jersey, Texas, Ohio, and elsewhere. Sweden is considering using small modular reactors to power future data centers.

However, co-location raises questions about equity and energy security, because directly-connected data centers can avoid paying fees that would otherwise help maintain grids. They also hog hundreds of megawatts that could be going elsewhere.

“They’re effectively going behind the meter and taking that capacity off of the grid that would otherwise serve all customers,” says Tony Clark, a senior advisor at the law firm Wilkinson Barker Knauer and a former commissioner at the Federal Energy Regulatory Commission (FERC), who has testified to a U.S. House subcommittee on the subject.

Amazon’s nuclear power deal meets hurdles

The dust-up over the Amazon-Susquehanna agreement started in June, after Amazon subsidiary Amazon Web Services filed a notice to change its interconnection service agreement (ISA) in order to buy more nuclear power from Susquehanna’s parent company, Talen Energy. Amazon wanted to increase the amount of behind-the-meter power it buys from the plant from 300 MW to 480 MW. Shortly after it requested the change, utility giants Exelon and American Electric Power (AEP), filed a protest against the agreement and asked FERC to hold a hearing on the matter.

Their complaint: the deal between Amazon and the nuclear plant would hurt a third party, namely all the customers who buy power from AEP or Exelon utilities. The protest document argues that the arrangement would shift up to $140 million in extra costs onto the people of Pennsylvania, New Jersey, and other states served by PJM, a regional transmission organization that oversees the grid in those areas. “Multiplied by the many similar projects on the drawing board, it is apparent that this unsupported filing has huge financial consequences that should not be imposed on ratepayers without sufficient process to determine and evaluate what is really going on,” their complaint says.

Susquehanna dismissed the argument, effectively saying that its deal with Amazon is none of AEP and Exelon’s business. “It is an unlawful attempt to hijack this limited [ISA] amendment proceeding that they have no stake in and turn it into an ad hoc national referendum on the future of data center load,” Susquehanna’s statement said. (AEP, Exelon, Talen/Susquehanna, and Amazon all declined to comment for this story.)

More disputes like this will likely follow as more data centers co-locate with clean energy. Kevin Schneider, a power system expert at Pacific Northwest National Laboratory and research professor at Washington State University, says it’s only natural that data center operators want the constant, consistent nature of nuclear power. “If you look at the base load nature of nuclear, you basically run it up to a power level and leave it there. It can be well aligned with a server farm.”

Data center operators are also exploring energy options from solar and wind, but these energy sources would have a difficult time matching the constancy of nuclear, even with grid storage to help even out their supply. So giant tech firms look to nuclear to keep their servers running without burning fossil fuels, and use that to trumpet their carbon-free achievements, as Amazon did when it bought the data center in Pennsylvania. “Whether you’re talking about Google or Apple or Microsoft or any of those companies, they tend to have corporate sustainability goals. Being served by a nuclear unit looks great on their corporate carbon balance sheet,” Clark says.

Costs of data centers seeking nuclear energy

Yet such arrangements could have major consequences for other energy customers, Clark argues. For one, directing all the energy from a nuclear plant to a data center is, fundamentally, no different than retiring that plant and taking it offline. “It’s just a huge chunk of capacity leaving the system,” he says, resulting in higher prices and less energy supply for everyone else.

Another issue is the “behind-the-meter” aspect of these kinds of deals. A data center could just connect to the grid and draw from the same supply as everyone else, Clark says. But by connecting directly to the power plant, the center’s owner avoids paying the administrative fees that are used to maintain the grid and grow its infrastructure. Those costs could then get passed on to businesses and residents who have to buy power from the grid. “There’s just a whole list of charges that get assessed through the network service that if you don’t connect through the network, you don’t have to pay,” Clark says. “And those charges are the part of the bill that will go up” for everyone else.

Even the “carbon-free” public relations talking points that come with co-location may be suspect in some cases. In Washington State, where Schneider works, new data centers are being planted next to the region’s abundant hydropower stations, and they’re using so much of that energy that parts of the state are considering adding more fossil fuel capacity to make ends meet. This results in a “zero-emissions shell game,” Clark wrote in a white paper on the subject.

These early cases are likely only the beginning. A report posted in May from the Electric Power Research Institute predicts energy demand from data centers will double by 2030, a leap driven by the fact that AI queries need ten times more energy than traditional internet searches. The International Energy Agency puts the timeline for doubling sooner–in 2026. Data centers, AI, and the cryptocurrency sector consumed an estimated 460 terawatt-hours (TWh) in 2022, and could reach more than 1000 TWh in 2026, the agency predicts.

Data centers face energy supply challenges

New data centers can be built in a matter of months, but it takes years to build utility-scale power projects, says Poorvi Patel, manager of strategic insights at Electric Power Research Institute and contributor to the report. The potential for unsustainable growth in electricity needs has put grid operators on alert, and in some cases has sent them sounding the alarm. Eirgrid, a state-owned transmission operator in Ireland, last week warned of a “mass exodus” of data centers in Ireland if it can’t connect new sources of energy.

There’s only so much existing nuclear power to go around, and enormous logistical and regulatory roadblocks to building more. So data center operators and tech giants are looking for creative solutions. Some are considering small modular reactors (SMRs)–which are advanced nuclear reactors with much smaller operating capacities than conventional reactors. Nano Nuclear Energy, which is developing microreactors–a particularly small type of SMR–last month announced an agreement with Blockfusion to explore the possibility of powering a currently defunct cryptomining facility in Niagara Falls, New York.

“To me, it does seem like a space where, if big tech has a voracious electric power needs and they really want that 24/7, carbon-free power, nuclear does seem to be the answer,” Clark says. “They also have the balance sheets to be able to do some of the risk mitigation that might make it attractive to get an SMR up and running.”