FERC Orders Grid Operators to Fast-Track Data Center Connections

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The Federal Energy Regulatory Commission (FERC) has instructed grid operators to expedite interconnection requests from data centers and other large electricity users. Under the new orders, six major grid operators must ensure that data centers can connect to the transmission system in a timely and orderly manner. Data centers will be responsible for covering the costs of interconnection.

The commissioners approved the orders unanimously. FERC's directives also open up opportunities for grid tech startups by directing grid operators to consider alternative transmission technologies. Although the commission did not specify particular technologies, this could include innovations like solid-state transformers or superconducting transmission lines.

Grid operators now have 30 days to submit a report detailing their available generating capacity. They also have 60 days to defend or revise electricity rates within their regions. FERC has directed grid operators to be more accommodating to behind-the-meter power for data centers.

While FERC's directives provide a fast lane for data centers to connect to the grid, they do not address the underlying shortage of generating capacity. Grid connections have been slow due in part to delays in connecting new power plants. At the end of 2023, grid connection requests for power plants exceeded the total capacity of the existing power plant fleet.

Electricity demand from data centers is expected to nearly triple by 2035. Grid operators, which have grown accustomed to near-zero demand growth over the last two decades, have struggled under the increased load. Some, like PJM, the country's largest grid operator, have faced significant challenges, with major utilities threatening to withdraw.

Tech companies and developers, unable to connect to the grid in a timely manner in many locations, have turned to on-site power out of desperation. Despite this, enough projects have been able to connect that electricity prices have soared in many regions. Wholesale electricity rates are up as much as 267% compared with five years ago, according to Bloomberg.

FERC was prompted to take action by Secretary of Energy Chris Wright, who in October stated that delays in data center grid connections threatened to undermine U.S. competitiveness in AI. The Trump administration on Wednesday announced it would pay $765 million to wind developer Invenergy to cancel offshore wind leases near California, Maine, and New York.

The company plans to use the funds to build natural gas plants in the Midwest and geothermal projects in the West. One of Invenergy's wind projects would have generated as much as 2.4 gigawatts of power — enough to supply roughly 1.8 million homes. Altogether, the Trump administration has now spent about $2.6 billion to scuttle offshore wind developments.