PJM's Data Center Surge Calls on Battery Storage

Retiring thermal capacity and clogged interconnection queues have created a system planning challenge over recent years for the PJM RTO, the largest organized power market in the US. However, PJM’s 2024 Load Forecast Report reveals that the RTO may possess more than just a supply problem: PJM expects demand to grow 2.2% per year over the next 15 years. Compared to last year’s prediction of a 1.3% annual demand growth, this change presents a reliability challenge for PJM’s generation capacity of over 180,000 MW.¹

PJM’s annual Load Forecast Report serves as the RTO’s roadmap for future demand expectations within its 13-state footprint. This year’s edition – published in the backdrop of Generative AI’s rise (GenAI) and its demand for electricity – highlights a significant upward revision of load growth expectations.    

PJM attributes the upward revision to a rising demand for data centers in the region. With data center giants moving to the proven ground of the Midwest and Mid-Atlantic, local politics and environmental opposition threaten the speed of construction. For developers of renewables and energy storage with projects in the PJM RTO, understanding the gaps in supply side reliability and environmental objectives driven by data center growth reveal significant opportunities for renewables and storage.  

Key Takeaways  

• PJM’s January 2024 Load Forecast predicts a near-doubling of the 2023 report’s annual average load growth over the next 10 and 15 years. Dominion, which traditionally serves nearly 50% of the data center load in Northern Virginia, leads the 15-year load growth expectation at 4.7% for summer peak and 4.3% for winter peak annually (compared to 2023 expectations of 4.4% and 4.2%, respectively).  
• Increased data center developments and industrial growth driven by the Inflation Reduction Act (IRA) account for most of the region’s load growth, according to PJM, Dominion Energy, and the Department of Energy. The region attracts data center developers due to strong internet networks and tax revenue benefits. Artificial intelligence also drives demand, as the increased deployment of GenAI requires new hyperscale centers.
• Rising demand expectations come as PJM faces a capacity shortage from logjammed interconnection queues and thermals face increasing economic pressure to retire. This reliability challenge will likely push capacity prices from near zero to the ceiling price quickly, and thermal retirements may stall due to additional demand serving as a lifeline.  
• Data center-influenced demand growth alongside rising renewable penetration put upward pressure on other products offered within the RTO. Given the renewable potential in PJM relative to supply, RECs may also increase in price. The low potential of onshore renewables in PJM compared to western locations could challenge strategies that deploy 100% renewables through cost-effective power prices.  
• Increasingly uncertain demand and supply also generate more energy price volatility, creating economic opportunities for flexible or price-responsive capacity, such as standalone storage or hybrid units. Ascend Analytics expects these same dynamics to play out around the country as demand from data centers increases.  

PJM Attributes Increased Energy Load to Data Center Growth  

In January 2024, PJM announced a significant upward revision to load in its net energy for load growth forecast compared to the 2023 report, marking the first time over the last 10 years the growth rate rose over 1.5%. The RTO expects net energy for load growth to average 2.3% each year over the next 10 years (2.2% over 15 years). PJM’s Zonal 10/15-Year Load Growth data sets show the Dominion and Eastern Mid-Atlantic (E-MAAC: parts of Delaware, New Jersey, Maryland, and Pennsylvania) zones facing the highest load growth. PJM accredits the increase to continued data center construction, along with the electrification of transportation and industry (Figure 1).  

Impacts of Electrification and Data Center Load on Forecasts (PJM)  

Northern Virginia witnessed a 25% compound annual growth rate in data centers from 2014 to 2021, resulting in a gross inventory of 3,972 MW and an additional planned 5,856 MW by H2 2023.^{2, 3}, 3tudies forecast Dominion to face about 5,700 MW of data center summer zonal load by 2027/2028.⁴ These growth figures outpace neighboring regions: nearby Allegheny Power Systems’ (APS) expects to gain about 1,500 MW in the same timeframe.  

Tax benefits and exemptions are a primary attraction point for counties and technology companies to execute data centers deals. Virginia acted as the first state to exempt data centers from the retail sales and use tax (DCRSUT Exemption),⁵ and in February 2023, the Washington Post reported that Loudoun County, VA, earns about $576 million in annual local tax revenue from its 115 data centers.⁶

On the state-level, the governors of Ohio and Virginia possess an affinity for data center investment – both spearheaded contracts with Amazon in 2023 to invest billions in campuses.⁷ Two data center bills scheduled for Virginia’s 2025 General Assembly could mandate greater resource transparency to qualify for attractive tax benefits and increase corporate PPA reliance (along with battery storage demand), if approved.⁸ 

Figure 2 maps out the six transmission zones with the highest forecasted annual load growth rates from 2024-2039 in PJM. The dark blue stars indicate the locations of new or planned data center campuses, along with port electrification strategies. Figure 3 dives into the site logistics.  

Forecasted 15-Year Load Growth for Summer Peak by PJM Transmission Zone (2024-2039)

‍Recent and Upcoming Data Center Developments in PJM’s Footprint

PJM’s Challenges in Meeting Data Center Load

PJM’s upward revision to load growth across the RTO footprint stresses existing and new capacity to come online to meet rising demand, and by extension, places upward pressure on capacity prices. Back in February 2023, PJM announced 40 GW of existing generation remained at risk of retirement by 2030. At the time, it also forecasted demand to grow 1.4% annually for the following 10 years.⁹ New hyperscale data centers deploying AI require 300-500 MW of capacity given new cooling and increased power density demands.¹⁰ Paired with state clean energy goals, the RTO’s new increased load growth points to the need for flexible resources to meet data center demand.  

Increased demand and innovation create higher expectations for data center performance, and outages serve as a key metric for service quality. Despite the Uptime Institute reporting a decline in outage rates for global center managers over 2020-2022, it also identified that the proportion of major outages costing data centers more than $100,000 increased from 39% in 2019 to 70% by 2022.¹¹ As outages potentially rise in cost severity, IRA-motivated tax credits could be a traction point for battery storage developers moving forward.

Data centers have historically pressured Dominion’s ability to meet load. In July 2022, Dominion announced it could not secure connectivity for new data centers and built additional substations and power lines, although CRBE emphasized transmission and distribution caused the insecurity rather than power generation. In Plan A of its 2022 Integrated Resource Plan, Dominion estimated adding at least 1,940 MW of natural gas-fired generation over the following 15 years for energy risk management.¹² By May 2023, Dominion reported five different resource plans for its Virginia division, ranging from 5,905 MW (Plan A) to 970 MW (Plan E) of additional natural gas-fired generation over 15 years.¹³  

Demand for clean energy continues to soar around the RTO as well, creating incentives for storage paired with renewable assets. Amid rising renewable procurement mandates, REC prices have risen above penalty prices for non-compliance across the RTO for several products. While higher REC prices improve renewable economics, (such as in PJM’s eastern states with more ambitious renewable deployment goals but lower onshore renewable resource potential), pairing assets with storage creates more attractive project economics.  

Data Centers to Strain a Grid Near You

The demand to deploy AI, and in turn develop new hyperscale data centers, will not remain unique to PJM. By the conclusion of Q3 2022, the U.S. housed 47,310 data centers – more than three times the number of facilities in 2001.¹⁴ Recent construction rates also point to heightened demand, as in H1 2021, the U.S. held 670.3 MW of data centers under construction and by H2 2023, construction rose to 5,341.05 MW. ¹⁵ Dallas-Fort Worth, Chicago, Northern California, and Phoenix all emerged as data center attraction points in 2023, with each hosting over 5,000,000 square feet of total data center inventory by H2 2023.¹⁶ These regions must also adapt to retiring thermal resources, and PJM’s current events may foreshadow how politics, center outages, and tax benefits play out.  

For power sector developers and grid operators looking to PJM, Ascend Analytics’ experts recommend building flexible capacity, such as solar paired with storage, in areas with high renewable penetration and increased load growth. As capacity and REC prices spike in the wake of expected energy shortages, the southern footprint of Dominion, Ohio, and AEP present promising opportunities for standalone or hybrid projects. If utilities rely on thermal assets more than intended to match data center demand, national climate goals could lag under the guise of seemingly sustainable electrification strategies. The trends point to an acute need for clean, flexible resources that offset retiring capacity to meet both existing and expected AI-driven demand.