Driving surge in demand for power, data centers eye Kentucky

An Amazon Web Services data center under construction in Stone Ridge, Virginia, on March 27, 2024. Amazon plans to spend almost $150 billion in the coming 15 years on data centers, giving the cloud-computing giant the capacity to handle an expected explosion in demand for artificial intelligence applications and other digital services. (Photo by Nathan Howard/Bloomberg via Getty Images)

LOUISVILLE — The boom in artificial intelligence is fueling a proliferation of new data centers  — the computer clusters that power the internet — in “places that maybe we hadn’t thought of before,” an industry spokesman told utility regulators gathered in Louisville last month.

Kentucky could be one of those places in the not-so-distant future.

The state’s largest utility and the legislature have taken steps to attract the investments — potentially billions of dollars — that come when companies such as Microsoft, Google and Amazon develop data centers. The data center boom is also fueling surging demand for power at a time when climate change has upped the pressure to reduce heat-trapping emissions from burning fossil fuels.

In an earnings call in May, the CEO of the parent company of Louisville Gas and Electric and Kentucky Utilities said it is “actively working with several large data centers” in Kentucky. PPL Corp. CEO Vince Sorgi said the prospective centers would each need 300 megawatts to 500 megawatts of electricity.

For comparison, one prospective data center could consume the entire power generation of one of LG&E and KU’s coal-fired units. E.W. Brown Generating Station, the utility’s coal-fired power plant in Mercer County, has a net power capacity of 457 megawatts.

Kentucky lawmakers are among those who see economic potential in these large-scale computer hubs. The GOP-dominated state legislature earlier this year sweetened the enticements for data centers to locate specifically in Jefferson County through House Bill 8, a broad tax policy law passed over the veto of Democratic Gov. Andy Beshear.

HB 8 gives sales tax breaks on data center equipment if a data center owner or operator makes a capital investment of at least $450 million or a “project organizer” invests at least $150 million. Those tax breaks would need approval from the state’s incentives board, the Kentucky Economic Development Finance Authority.

The Kentucky Lantern requested an interview with Rep. Jason Petrie, R-Elkton, the chair of the Kentucky House Appropriations and Revenue Committee and the leading sponsor of HB 8. In response, Petrie in a statement said the incentives in HB 8 were “consistent with our ongoing efforts to make sure Kentucky remains competitive as we continue to explore potential economic investments.”

WDRB reported in April that Louisville Mayor Craig Greenberg said he was excited about a “transformative” economic development project involving a data center that could locate in the southwestern part of the city but declined to discuss additional details about the project.

The prospect of attracting data centers to Kentucky, however, also raises concerns among advocates for the environment who follow utility policy: Would Kentucky consumers be forced to shoulder the financial burden of building new transmission lines and power plants to supply data centers with power? Does the state have enough clean energy to attract data center companies that want access to it?

Randy Strobo, a Louisville attorney focusing on environmental issues and litigation, said state and federal governments ultimately have the responsibility to analyze how new data centers would impact Kentucky’s regional electric grid and local communities “from all different perspectives.”

“There’s going to be other impacts other than just energy,” Strobo said, mentioning how some data centers use large amounts of water to cool computers . “They really need to weigh all the different costs and benefits and try to balance it out in a way that helps more people than hurts them.’

What are data centers — and what can they bring?

In addition to the highly publicized boom in AI services, other factors are also driving the surge in new computer hubs, including the demand for “cloud” storage space and computation power along with a slew of data-driven enterprises across the globe.

Josh Levi, the industry spokesperson and president of the Data Center Coalition who addressed the Louisville conference, put growing data usage in simpler terms: Sending emails. Using search engines. Streaming video. Credit card transactions. Sending high-definition medical records to help make diagnoses in health care.

“We’re doing it in more places: our home, our office, our home office, the plane, the train. We’re doing it all hours in a day,” Levi told the Louisville audience. “It seems like we’re fairly ubiquitous in our command to generate data, and our companies are very much responding to that.”

The payoff, at least in terms of capital investment and potential tax revenue, can be significant for communities and states that have the power, internet connection and workforce.

Communities in Northern Virginia — a nucleus of data center development  — could reap tens of millions of dollars from local taxes on the operations. Critics, however, say that Virginia’s state tax breaks for data centers generally cancel out any new revenue brought in by local governments.

States outside the data center hubs of Virginia and Atlanta have already benefited from the boom. In Mississippi, Amazon is spending about $10 billion to build two data center campuses. In Southern Indiana across the Ohio River from Louisville, Facebook’s parent company Meta is investing $800 million in a data center.

Levi in a statement to the Lantern also asserted data centers have a job multiplier effect beyond their direct employment, pointing to a Data Center Coalition-commissioned report by consulting group PricewaterhouseCoopers that found that nationally each data center job supports six jobs elsewhere in the broader economy.

“By prioritizing investments in local communities, data centers also boost supply chain and service ecosystems, creating jobs for thousands of construction professionals during the building phase and providing quality, high-wage jobs for ongoing operations,” Levi said in his statement. “Further, every data center comes with years of reliable support for local economies by promoting job creation at restaurants, hotels, rental car agencies, fiber and HVAC installers, steel fabricators, and many other businesses.”

What do data centers need — and at what cost?

Levi said data center developers are looking for fiber internet connections, a workforce to build and run the centers and places less at risk for natural disasters.

They also need power, and lots of it.

According to a January 2024 report from consulting firm McKinsey and Co., electricity demand by data centers in the United States is expected to go from 17 gigawatts in 2022 to 35 gigawatts in 2030. For comparison, Kentucky’s net summer capacity — the maximum amount of electricity produced in the state during peak summer electricity demand — in 2022 was 17.6 gigawatts, according to federal data.

“Reliable power is incredibly important to the data center industry,” Levi said at the conference. “This is an industry who is relied upon to provide non-stop access to the data.”

But in weighing potential investments and jobs, some environmental advocates in Kentucky worry about who would pay for new transmission lines and power plants if they’re needed to run data centers.

“As these new data centers are coming online, how are we going to pay for them?” said Strobo, the environmental attorney. He questions whether states should offer “huge incentives” to data centers given the possibility that the costs to accommodate them could fall on electricity ratepayers.

Two utilities, including American Electric Power, the parent company of Kentucky Power, are protesting before a federal regulator an agreement between Amazon and an independent power producer to use electricity from a Pennsylvania nuclear plant because of concerns that up to $140 million in electricity transmission costs for the agreement could be shifted onto ratepayers. Talen Energy, the independent power producer, is pushing back against AEP’s protest.

Some environmental advocates also worry about heat-trapping carbon emissions connected to new data centers, particularly that demand from new data centers could be keeping older coal-fired power plants online when they could be retired. In Georgia, the state’s largest utility is building new natural gas-fired or oil-fired generators along with some solar battery facilities in part to meet the future power demands of data centers .

Levi told the Lantern that access to clean energy is a consideration for where data centers locate. For example, Amazon is helping pay a local utility in Mississippi to build solar farms to pair with its new data center campuses but will also power the data centers with a new natural gas-fired turbine.

Kentucky currently has very little in the way of renewable energy , notwithstanding hydroelectric power, with about 70% of electricity generated in the state coming from burning coal, the “dirtiest” fossil fuel in terms of heat-trapping carbon emissions , as of February 2024 according to federal data.

Lane Boldman, the executive director for the environmental advocacy group Kentucky Conservation Committee, says Kentucky must build more renewable energy to compete for new industries, including data centers and an aluminum smelter , which prioritize climate-friendly technology.

“We just haven’t taken the time to build out the power. But we have the potential to build up the power. We certainly have the right mix of ingredients to do that. I mean, that’s just simply a political problem to work through,” Boldman said.

The unique circumstances of data centers

John Bevington, senior director of business and development at LG&E and KU, says manufacturing companies looking to locate in Kentucky usually ask about the availability of land and nearby railroads or highways.

Not so with data centers.

“They’re so energy intensive, they tend to start asking questions of utilities first,” Bevington told the Lantern. “They really need proximity to power lines and power lines that have capacity.”

It’s unclear at this point whether LG&E and KU would seek to build more power generation, fossil fuel-fired or renewables, to meet the demands of prospective data centers coming into the state.

Chris Whelan, a spokesperson for LG&E and KU, told the Lantern that the potential power demands of data centers will be analyzed in the utility’s future energy planning documents to be filed later this year with the Kentucky Public Service Commission, the state’s utility regulator.

Bevington with LG&E and KU said the higher energy demands of prospective data centers coincide with the overall higher energy demands of new economic development projects in Kentucky, including battery plants being built by Ford. For the time being, Bevington said, the number of existing data centers in LG&E and KU’s territory is “pretty minimal.”

Strobo, the environmental lawyer, says tech companies like Google appear to be a safer economic development bet than cryptocurrency mining operations that are similarly energy-intensive. The PSC last year in multiple  cases denied or approved electricity cost discounts sought by utilities to serve Bitcoin mining operations across Kentucky.

“It seems like Google and Microsoft and all of them are being intentional about trying to do it in a way that tries to minimize impacts, although, of course, there’s still going to be some pretty major ones from all of it,” Strobo said. “We all know they’re coming. Everybody wants them to come for the most part.”

Bloomberg News recently reported the parent company of Google, which has seen its heat-trapping carbon emissions rise due to its investment in AI, is no longer claiming its operations are carbon neutral, and the company plans to be carbon neutral by 2030. Google also recently announced an investment into solar power in Taiwan among other renewable energy endeavors .

While data centers may not create a large number of jobs, Bevington of LG&E and KU said, the tax revenue brought in could be a boost to communities.

“Whether that’s a data center or a new automotive supplier or an electric vehicle battery manufacturer or a new bourbon distillery, I think we really tend to look at all of it as, ‘What can we do to enable growth in our communities?’” Bevington said. “We sort of look at data centers as, you know, another very competitive project.”

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