Data Center Demands & Impacts on the Energy System: An Energy Horizons Special Report
On September 26, 2024, OnLocation hosted a webinar and released its report, Data Center Demands & Impacts on the Energy System: An Energy Horizons Special Report. View the webinar recording, download the presentation, or read the transcript. The U.S. energy system will continue a significant transition through 2050, driven by new technologies, policies, and consumer choices. These will result in new market dynamics, industry challenges, and changes in energy-related greenhouse gas emissions. OnLocation, a KeyLogic company, produced the Data Center Demands report to explore these issues using its enhanced version of the National Energy Modeling System (OL-NEMS). The Data Center report provides two scenarios that illustrate potential impacts of data center demands on electric power supply.
The Data Center report is a follow-on report to OnLocation’s U.S. Energy Horizons to 2050 report released in June 2024. The Horizons report and subsequent analyses are designed to contribute to the energy & climate modeling community following the U.S. Energy Information Administration’s (EIA’s) announcement that they would not release an Annual Energy Outlook (AEO) for 2024.
What is the OnLocation Data Center Demands & Impacts on the Energy System report?
The Data Center report provides a snapshot of the evolving energy landscape as it relates to the growing demand for data centers and artificial intelligence (AI). The report considers existing literature on the subject and projects potential future effects of data centers on energy supply and demand. Although the report includes modeled projections based on input assumptions that are highly uncertain especially over the long-term, the scenarios illustrate potential trends, and the report raises key questions that need to be considered by the industry.
Why did OnLocation release the Data Center report?
Data centers are becoming a crucial part of society, not only for the services they provide (e.g., cloud-based services, AI, cryptocurrency), but also due to the high energy demand they generate. It is necessary to understand the evolving landscape and be prepared to answer questions about power supply, quantity needed to remain competitive in a growing industry, and the impact of data centers on greenhouse gas emissions. The Data Center report provides a first look on a U.S. regional level at how data centers may impact the future of the U.S. energy system.
What does the report reveal?
Our latest report explores how the power sector would respond through two alternative growth scenarios along with a counterfactual case that allows for evaluating incremental impacts. These scenarios project an average growth of 48% to 69% in data center energy demand from 2020 to 2050. To meet rising demand, the national electricity generation mix (Figure 1) will initially rely on natural gas plants, followed by a significant transition to renewable energy sources—especially solar and wind—by 2030. This shift will be supported by declining technology costs and incentives under the Inflation Reduction Act (IRA). (For more about these policy and technology assumptions, refer to OnLocation’s Energy Horizons report.) Notably, nuclear power will also play a role after 2040 as new facilities come online and existing units delay retirement. Overall, by 2050, the increase in clean energy generation, both renewable and nuclear energy, will outpace the rise in demand from data centers relative to current levels.
Figure 1. Electricity Generation by Scenario
A key concern associated with this demand growth is the potential impact on CO2 emissions, especially as the nation strives to meet its zero-emission goals by 2050. Across all scenarios, annual CO2 emissions (Figure 2) are expected to decline as fossil-fuel generation is replaced by cleaner alternatives. While the High Growth scenario shows emissions rising by approximately 90 million metric tons (MMT) per year between 2025 and 2035 due to increased reliance on baseload fossil plants, long-term emissions in all scenarios converge as the demand growth stimulates further clean energy generation.
Figure 2. Net CO2 Emissions from the Power Sector
Conclusion
This report underscores the expected significant growth in data center demand driven by emerging technologies, presenting a critical challenge for the national energy infrastructure. Meeting this demand sustainably requires not only an accelerated transition to renewable energy but also the expansion of emerging power technologies such as small modular reactors (SMRs) into the commercial market.