A mega data center could drive AI, deliver billions to CT. Will politics and power worries doom it?

There is a political tug of war taking place over development of a data center in southeast Connecticut, a project that would put the state in the race to satisfy the voracious appetite of artificial intelligence for computational power while delivering $1 billion or more in payments to state and local governments.

What is dividing Gov. Ned Lamont’s commissioners and some in the legislature are questions arising from what promoters believe is a groundbreaking arrangement that makes a power-hungry, mega data center economically feasible in a state and region with some of the nation’s highest electric rates.

To power and cool tens of thousands of computer servers, the developers have arranged to plug directly into two nuclear-powered generators operated by Dominion Energy on Millstone Point in Waterford. Skeptics worry that the data center’s power consumption — as much as 13% of the Millstone output — could raise consumer electric rates or, worse, affect the reliability of the regional electricity supply.

Thomas Quinn, president of NE Edge, the data center developer, calls the concern unwarranted. He has forecasts created by the operator of the New England electric grid that he says show there will be more than enough generated electricity flowing into the network in coming years to support the center. And he said the tens of millions of dollars he has agreed to deliver to the state annually over the next 30 years could actually lower electric rates.

But not everyone is persuaded.

The Lamont administration is split. Economic and Community Development Commissioner Dan O’Keefe is an enthusiastic supporter, along with the town of Waterford, Dominion Energy and an array of business and labor groups. Katie Dykes, commissioner of the state Department of Energy and Environmental Protection, is said by others involved in the project to oppose it and supports a bill in the legislature calling for a study that could delay it.

Quinn says a delay might doom the project by shifting momentum elsewhere in the race to build what would amount to New England’s first clean energy, hyper-scale data center.

Lamont appears to be keeping both options open, a spokesman said.

“Data centers are the backbone of the digital age, and Governor Lamont believes that Connecticut is a prime location for this industry to build this infrastructure and create the corresponding jobs that support their operations,” spokesman David Bednarz said. “As the governor noted in his State of the State address last month, modern technology is putting more demands upon the grid, and he welcomes the insight of legislators on the energy and environment committees regarding methods of sourcing the next generation of clean energy with an emphasis upon affordability.”

There is agreement on at least one point: In the age of artificial intelligence, powering the computational capacity to run devices like self-driving cars won’t be cheap, particularly in states turning away from traditional energy sources and struggling to develop expensive renewables like offshore wind. One industry group estimates AI could consume 8% of U.S. energy output by 2030.

“This is a unique one”

Quinn says NE Edge wants to build on a scale that would separate it from typical data centers — there are more than two dozen across Connecticut and Massachusetts — and the success of his plan turns on the cost of electricity.

“This isn’t a data center,” Quinn said. “This is a high performance compute AI base. That is what they call it. The difference in what we are doing from a normal data center is the difference between a single family house and a skyscraper.”

What distinguishes NE Edge is not just that it would be powered by a nuclear generation plant, but that it will have an agreement with plant operator Dominion that will allow the center to tie directly to the Millstone generators without passing through the costly transmission infrastructure controlled by Eversource and regulated by the state.

By remaining “behind the meter,” as Quinn puts it, NE Edge can negotiate a power purchase agreement with Dominion that is lower than the rate — one of the highest in the nation — that Connecticut utility customers pay. Without a negotiated “behind the meter” agreement, Quinn said a project of the scale he envisions would not be practical in New England.

It also makes for an environmentally friendly, “clean” operation by avoiding the use of carbon-based electric generation..

NE Edge would make money by connecting to the high speed fiber optic network that runs past the Millstone site and renting computing services to businesses, from online retailers to stock exchanges.

NE Edge has pushed its proposal for five years. It got a break in 2021 with enactment of a state law that waived sales and property taxes for up to 30 years for developers who invest $400 million in data center projects. The law, the product of an unsuccessful Connecticut attempt to attract data center development that could lure the processing of Wall Street trades away from New York and New Jersey, also cleared the way for behind the meter connections to electricity generators.

Quinn said NE Edge has secured $1.6 billion in financing for construction of buildings, an electric switching station and two, two-story buildings with a combined 1.2 million square feet. He plans to spend an equivalent amount on 25,000 to 35,000 servers and enough recyclable sodium ion batteries to ensure the power supply is never interrupted.

The data center would occupy 55 acres of Dominion’s 526 acre Millstone property and would not be visible from roads to the north or from Long Island Sound to the south, according to a report by the Connecticut Siting Council. Quinn said Turner Construction, currently building 17 clean data centers in the U.S., is to be the builder.

To keep the center quiet — Quinn said the center’s noise level should match the area’s ambient level — loud equipment like air handlers would be placed inside the buildings and enclosed by insulated concrete walls so thick they must be poured while lying flat on the ground and later tilted up into place.

Under a host fee provision in the state law establishing the tax incentive, NE Edge would pay Waterford $231 million over the next 30 years in lieu of property taxes.

The state would get more than $1 billion over 30 years, Quinn said.

Part of the state’s money would come from a premium NE Edge agrees to pay based on 12.08% of what it pays Dominion for electricity. Quinn said the premium could amount to $1.1 billion or about a third of what the state owes on a long-term power purchase agreement it has with Dominion. The state signed its agreement with Dominion as an incentive for the company to keep the Millstone reactors in operation, according to the Connecticut Siting Council.

Quinn said NE Edge has agreed to pay the state another $63 million over 30 years through contributions to an energy assistance fund that supports residents who cannot pay electricity bills.

Finally, NE Edge has agreed to store the state’s data at a rate discounted by 27.5%, Quinn said, a deal that would make Connecticut the first state to store its data in a fossil free operation.

Dan Dolan, president of the New England Power Generators Association, said NE Edge’s Waterford plan is being watched closely by industry players across the Northeast.

“I really am hard pressed to think of another example in New England where we could see a data center come in at that scale with land use, population density and then, honestly, the retail price of electricity that is relatively high across New England compared to the rest of the country,” he said. “So I think this is a unique one.”

Dominion Energy said in a statement that it supports the project and recognizes “the benefits of constructing a large electric user near a generating plant.” The company is applying for license renewals that could keep the Millstone reactors active into the 2060s, and said that power purchase agreements like that contemplated with NE Edge are “critical to Dominion Energy’s continued operations.”

The company said it is “in discussions with NE Edge regarding a Power Purchase Agreement (PPA) but there is not a signed PPA.”

“The right framework”

Waterford First Selectman Rob Brule said his board and the 28-member Representative Town Meeting both voted unanimously in support of the data center “to help retain our largest taxpayer, Dominion Energy, and provide additional decades of financial stability in the Town’s tax base.”

Questions about the NE Edge plan are coming from the Department of Energy and Environmental Protection.

Dominion said it has “had high level conversations with DEEP about the data center project,” but did not elaborate. A DEEP spokesman said Commissioner Dykes would not discuss the project beyond her brief remarks when she appeared recently before the legislature’s Energy and Technology Committee to comment on legislation that would order a study of data center electric power use.

“We recognize that artificial intelligence is providing enormous promise and there are a lot of questions about it,” Dykes told the committee. “But from the energy perspective alone I understand that the demand and need for data centers is expanding significantly …

“And so we think that it is really important to have the right framework to ensure that there is equitable deployment of this kind of demand, that it doesn’t shift any costs or increase costs to other ratepayers and is harmonized with the need to maintain reliability of the grid. So we welcome the opportunity to further engage with the committee as it decides on ways to support the expansion of data centers, but in a way that accomplishes those goals.”

Dykes was testifying on a brief and hastily drawn committee bill that, if enacted, would require a variety of regulatory agencies, including DEEP, the state’s rate setting authority and the independent operator of the New England energy grid, to “evaluate the impact of large data centers on grid reliability.”

Sen. Norm Needleman, the committee chairman who had staff draft the bill, said he is focused on a part of the NE Edge plan that would have the data center draw power from the regional power grid on occasions when Millstone generation is offline because of maintenance or other issues.

“That is like a double whammy on the power plan,” Needleman said. “You’ve got a 300 megawatts reduction at Millstone. And at the same time if something happened and backup needed to be run, you are pulling 300 megawatts off of the grid.”

Millstone is a major contributor to the regional electric grid, supplying 12% of the region’s peak energy load between 2019 and 2022, according to a report by the Connecticut Siting Council. The same report says that Dominion believes that providing power to the data center would not affect its commitment to supply the grid.

Dominion “believes the interconnection of the data centers and associated switchyard would not have any impact on Millstone Power Station’s  winter and summer reliability,” the report said.

As written, there is nothing in the committee bill that could block the data center. But Needleman called the bill a work in progress and said there is the possibility of a revision that could make the tax exemptions on which the project depends contingent on completion of an energy study. Other legislative observers said there is no guarantee the bill has enough support to survive in any form.

The siting council also has questions about the center’s power use, questions similar to those asked by Dykes. Its jurisdiction over the location of electrical generating facilities gives it authority to decide whether to grant a request by Dominion to sell a portion of its property on Millstone Point to NE Edge.

The council denied Dominion’s request to sell the land in early January. In a written decision, the siting council concluded that “it is premature” to examine terms of the land sale because of a “lack of information” about the data centers and their direct connection to Millstone.

Dominion can resubmit the request after providing more information to the council. But three months after the denial, the council has not said what information it wants, a NE Edge official said.

The siting council’s executive director did not respond to a request to discuss the decision.

Quinn said a report published earlier this month by ISO New England, the independent operator of the New England electric grid, backs his contention that there is enough electric generation in the region to support the data center without affecting other customers.

“This March 1st, 2024, ISO-NE report fully addresses the Energy and Technology Committee’s questions offered at the recent public hearing,” he said.

ISO New England is aware of the Waterford data center but has not evaluated the proposal.

“We would need more specific information to evaluate that concept,” ISO spokeswoman Mary Cate Colapietro said. “If a specific proposal does come to the ISO, we would evaluate it at that time.

“Adding a data center in New England is not necessarily a problem. Businesses and industry regularly develop new ventures in the region and the ISO continually evaluates the transmission system and supply needed to meet the changing demand. The demand for electricity is expected to grow substantially as the states seek to decarbonize transportation and buildings through electrification, nearly doubling by 2050.”