The Midwest’s Data Center Boom: Opportunities and Challenges
As the Midwest emerges as a major hub for data centers, the region faces both opportunities and risks in the rapidly evolving energy landscape. From Microsoft’s $3.3 billion project near Racine, Wisconsin to the growing data center footprint across the Chicago area, the Midwest is becoming a prime destination for these energy-intensive facilities. However, this surge in data center development also presents a complex set of challenges that clean energy advocates, utilities, and policymakers must address head-on.
The Midwest’s Rise as a Data Center Destination
The Midwest, particularly the areas around Chicago and southeastern Wisconsin, have seen a significant influx of data center investments in recent years. This trend is exemplified by Microsoft’s planned $3.3 billion data center complex near Racine, Wisconsin, which has been touted by President Biden as a prime example of reinvigorated Midwestern investment.
Beyond Microsoft’s project, the Midwest is home to a growing number of data centers. The Chicago area alone hosts more than a hundred data centers, with additional facilities cropping up in southeastern Wisconsin. Many of these data centers are situated on the sites of former coal plants or industrial operations, repurposing existing infrastructure.
Across the region, experts point to several factors driving the Midwest’s appeal as a data center hub. The availability of land, cooler climate, and access to abundant water resources make the region an attractive location for energy-intensive data centers. As Josh Riedy, who helped design North Dakota’s first tier-three data center, noted, “There is no better place” for data centers than the Upper Midwest.
The Double-Edged Sword of Data Center Demand
While the data center boom presents economic opportunities, it also poses significant challenges for the Midwest’s energy landscape. Clean energy advocates warn that the surge in data center demand could prolong the life of coal plants, spur new natural gas generation, and strain the electrical grid.
Wisconsin utility We Energies, for instance, cited the growing demand from data centers in its recent requests to the Public Service Commission for 1,300 MW of new natural gas generation. Microsoft, on the other hand, has promised to build renewable energy projects in the state, though the company will likely also purchase power from We Energies, potentially fueling the utility’s fossil fuel investments.
“We are concerned that there could be an overinflation of expected demand in order to capitalize on this trend and build more gas as a last-ditch effort,” said Ciaran Gallagher, energy and air manager for Clean Wisconsin.
The potential impact on customer rates is also a significant concern. Under a state law passed for the Foxconn project, Microsoft is eligible for discounted, market-based electricity rates, which could shift the burden onto regular utility customers.
Navigating the Transition to a Renewable Future
Clean energy advocates emphasize that data centers and the economic development they bring are not inherently at odds with environmental protection and climate mitigation. However, they argue that realizing the full potential of data centers as a low-carbon industry requires a strategic approach.
“This can be a low-carbon industry but only if new additional renewables are built to supply all or most of their demands,” said Ciaran Gallagher of Clean Wisconsin. Pairing renewable energy sources with storage can provide the reliability that data centers require, while avoiding the need for new fossil fuel generation.
Renewable energy advocates also caution against the rush to build natural gas plants to accommodate projected data center demand, as these investments could become stranded assets or require costly retrofits to comply with stricter emissions regulations.
“Gas isn’t coal, but we shouldn’t be striving for the second worst option, for the environment or for our pocket books,” said Sam Dunaiski, executive director of RENEW Wisconsin.
Innovative solutions, such as leveraging the Midwest’s abundant renewable resources and integrating energy storage, may hold the key to powering data centers in a sustainable and cost-effective manner. As the region grapples with the opportunities and challenges posed by the data center boom, a collaborative approach that aligns economic development with clean energy goals will be crucial.
Adapting the Grid and Utility Models
The surge in data center demand also requires significant investment in grid infrastructure and resilience. Data centers, with their constant and intensive power needs, place unique strains on the electrical grid that differ from traditional commercial or industrial facilities.
“If you’ve built and designed a data center, you know the nature of them is in many ways fundamentally different than most energized structures,” explained Josh Riedy. “With crypto mining or AI model training, you see machines running at near peak performance around the clock. That’s producing a type of strain on the grid that has few comparisons.”
Addressing these grid challenges may open the door for innovative solutions, such as strategically placing data centers near renewable energy sources to take advantage of off-peak power and reduce transmission costs. Additionally, the need for grid resiliency and flexibility could drive investments that ultimately benefit the grid as a whole.
Utility models may also need to adapt to accommodate the unique demands of data centers. There are discussions around creating a separate customer class for data centers, potentially with different rate structures, to ensure equitable cost distribution and avoid overburdening regular utility customers.
A Collaborative Path Forward
As the Midwest grapples with the data center boom, a collaborative approach that brings together clean energy advocates, utilities, policymakers, and technology companies will be crucial. Striking the right balance between economic development and environmental protection will require innovative solutions, careful planning, and a shared commitment to a sustainable energy future.
By leveraging the Midwest’s renewable energy resources, integrating energy storage, and adapting grid infrastructure and utility models, the region can position itself as a leader in the low-carbon data center industry. This will not only benefit the environment but also create economic opportunities and ensure affordable and reliable electricity for all customers.
The data center revolution in the Midwest is a complex challenge, but with foresight, cooperation, and a focus on sustainable solutions, the region can harness the promise of this emerging industry while mitigating its energy-related perils.
