The largest power grid in the United States is under pressure from artificial intelligence, and no one is happy about it

It’s unfortunate to link PJM. For decades, the grid operator has worked quietly and in the background, juggling electricity demand and supply. Meanwhile, customers enjoyed some of the lowest electricity rates in the United States.

no longer. Politicians, businesses, households and energy companies believe it needs an overhaul. Even PJM agreed.

JEM released a white paper this week saying the region “has years, not decades” to make fundamental changes to the way it operates. “The current situation is untenable,” PJM CEO David Mills wrote in the report’s introduction.

Typically, this kind of wonky reporting lands on the desks of a few legislators and regulators. But the PJM region includes a large number of data centers, including the compute-dense Northern Virginia region. What happens to PJM will send ripples throughout the tech world.

The 70-page report is an exercise in navel gazing. But despite deep reflection, not everyone is convinced that the organization is up to the task of reforming itself. One utility, American Electric Power, is considering pulling out of PJM altogether.

“The current state of PJM’s performance and stakeholder approval process does not give me much confidence that these issues will be resolved any time soon,” AEP CEO Bill Fairman said on an earnings call Tuesday. “In fact, if something isn’t done now, I expect we could still be having these same conversations in 10 years. The PJM market has worked very well when supply has outpaced demand, and we are now in a very different time.”

Here’s what’s changed

Cloud computing and artificial intelligence are beginning to put pressure on PJM’s existing generating capacity. Against the backdrop of growing demand, PJM has paused orders in 2022 for new generating sources to connect to its grid, citing a years-long backlog of orders. Just as the need for electricity began to grow for the first time in decades, the grid operator blocked new sources from applying for connection.

PJM is not entirely to blame for the long backlog. Many interconnection requests are duplicates – developers will essentially propose the same project in different network areas to see which gets approved first. PJM’s stringent approval process means that of the more than 300 GW worth of projects in the pipeline in 2022, agreements for just 103 GW have ended up being signed, and only 23 GW have been connected so far. Most developers pulled out rather than wait.

Demand in the region remains so strong that, since PJM recently reopened the waiting list, energy companies and project developers have submitted more than 800 interconnection applications for 220 gigawatts of new capacity. PJM may have been able to temporarily halt new orders, but it did nothing to reduce demand for new interconnections.

Here’s what PJM suggests

In its white paper, the JEM proposed three options. Utilities and power generators may be required to make larger and longer-term commitments. (PJM currently requires them to commit to supplying a certain amount of electricity for three years.) The second option is to change reliability guarantees for customers — those who pay less may have their power cut off first. The final option is to try to bring PJM closer to the real-time market, where supply and demand determine prices, without completely eliminating stability from long-term contracts.

It’s hard to see how PJM could look good in any of these scenarios.

First, the way PJM manages its market has it somewhat in a three-year mindset. It seemed to work when natural gas power plants were replacing coal-fired generators, but today solar and batteries can be installed at least two to three times faster. Moreover, the shortage of natural gas turbines means that power plants planned today will not be able to install the equipment until the early 2030s. In addition, turbine prices have risen significantly on the back of demand for hyperscalers. Given these facts, it is difficult to see suppliers wanting to commit to a longer timeline.

The second option would result in PJM dividing its territory, its clients, or both into groups of “haves” and “have-nots.” For people and businesses stressed by years of high utility bills, it’s hard to see them being happy with substandard service. Politicians have taken advantage of rising energy prices and anti-data center hostility and are therefore unlikely to support this.

The latter approach has a nuance, but it also seems like PJM is trying to be all things to all people. It’s the kind of plan that looks like it should appeal to big utilities like US Electric Power, giving them the opportunity to play short-term markets for more profits while also taking advantage of predictable longer-term contracts — having their cake and eating it, too. However, if AEP, one of the largest utilities in the PJM region, is not happy with the list before it, it is difficult to see how PJM could choose that list either.

The increased demand for data centers has coincided with the disruption of renewable energy sources and batteries, which continue to decline in cost. These trends are now colliding with an organization that does not want – or does not know how – to change the way it operates.

Maybe PJM thought about it in its white paper My mistake I will buy it some time. But with politicians threatening to set price caps and utilities refusing to participate in the future, the grid operator may not have years to sort things out. It looks like a chaotic few years ahead.