Texas data center dash creates solar price uncertainty
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This week: the rush to build data centers is accelerating demand for solar, but where will prices go? Much depends on the grid.
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Texas data center dash creates solar price uncertainty
Surging demand from tech groups in Texas has accelerated a bullish solar and storage market but grid bottlenecks have created a wide range of wholesale price forecasts.
The impact of new data centers and computing facilities on the solar and storage market is exemplified in Texas.
Power demand from?AI and cryptocurrency?groups is soaring and the Dallas-Fort Worth conurbation is the second biggest data center market in the U.S. after Virginia. Data centers require large amounts of power for operations and cooling and more than 150 have been developed around Dallas-Fort Worth by companies such as Google, Facebook and Verizon.
Between 2019 and 2023, annual commercial sector power demand increased by 13 TWh in Texas on the back of data center growth, figures from the U.S. Energy Information Administration (EIA) shows.
"According to various demand projections, data center load growth is particularly high over the next 10 to 15 years," Gabe Messercola, Associate Director, Capital Improvements Portfolio Management at clean power developer EDF, told Reuters Events.
Data center operators?favor sites with renewable energy supply, transmission availability and low development costs and many have been lured to Texas by a thriving solar sector and low real estate prices.
Texas is the U.S.'?fastest growing?solar and storage market and by August the state had 18.8 GW of solar capacity, second behind?California?(21 GW) and well ahead of third-place Florida (9.7 GW).
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While rising demand from data centers and other large flexible load (LFL) customers creates opportunities for clean power developers, there is major uncertainty over the pace of demand growth. Grid connection queues are delaying new facilities, resulting in wide differences in wholesale power price forecasts that underpin revenue predictions for clean power projects.
In its base forecast, the EIA predicts average wholesale prices at the ERCOT North Hub to be $34.64/MWh in 2024 and drop to $27.17/MWh in 2025 due to lower gas feedstock prices and rising solar penetration. Under a high demand scenario, the EIA predicts a 2025 price of $31.69/MWh, compared with $24.26/MWh under a low demand scenario.
? ? ? ? ? ? ? ?Forecast wholesale power price at Texas ERCOT North
This price uncertainty is important as data centers play a growing role in power system balances nationwide. The share of total U.S. power demand represented by data centers is forecast to soar from 3 to 4% this year to 11 to 12% by 2030, analysts at McKinsey said in September.
Growing demand from data centers is “a net positive for solar developers as it places upward pressure on energy prices and, ultimately, revenue capture," a spokesperson for developer Leeward Renewable Energy (LRE) said. However, the rate at which prices rise could be impacted by fluctuations in natural gas prices and the pace at which new consumers, generators and?power lines?can be commissioned.
“While the exact pace and duration of data center growth are difficult to predict with certainty, current trends indicate a strong upward trajectory,” the spokesperson said.
AI boom
Recent deals between power-hungry tech groups and solar developers include a long-term power purchase agreement (PPA) between Google and X-Elio in September for a 128 MW solar/100 MW storage plant in Bell County, Texas, due online in late 2025.
Last month, Google signed a PPA for 90 MW from Engie’s 350 MW Chillingham solar project in Bell County, under the LEAP program, which was co-developed by Google and pricing platform LevelTen Energy to streamline the sourcing of PPAs.
In March, Leeward Renewable Energy (LRE) signed PPAs with Microsoft for two 200 MW Texan projects - Morrow Lake Solar in Frio County and Cradle Solar in Brazoria County, by the end of 2024 and 2025 respectively.
Texas will attract 100 GW of new solar capacity over the next ten years, “outpacing the next closest state by a two-to-one margin,” the Solar Energy Industries Association (SEIA) and Wood Mackenzie forecast in June.
Storage installations?are also soaring and at the same time, the level of demand growth is uncertain.
In its most likely scenario, the EIA predicts demand from LFL customers will rise from 6.5 GW by end-2024 to 9.5 GW by end-2025 but if Texas grid operator ERCOT approves projects more quickly, it could reach 14.2 GW.
In September, ERCOT said 26.5 GW of LFL capacity had applied to become operational by end-2025, but not all of these will gain grid approval and be completed by then.
? ? ? Growth in Texas power demand from data, computing facilities
Another uncertainty hanging over demand growth is how the efficiency of AI systems will change over time, reducing the energy needs of data and computing facilities, Messercola said.
In 2022, ERCOT set up a program to approve proposed LFL customers with expected peak demand capacity above 75 MW. Through the program, some LFL facilities have concluded curtailment agreements with ERCOT to temporarily cut their power consumption during periods of particularly high system demand or low generator availability.
However, the program is voluntary, so it “will not be able to attenuate the full impact of rising wholesale power prices," the LRE spokesperson said.
While rising energy demand creates opportunities for solar developers, they will still need to navigate grid connection queues and congestion risks, Messercola said.
Texas already suffers from congestion in West Texas due to a lack of transmission and grid expansions will be needed to accommodate a surge of new clean power and large consumer facilities in the coming years.
Storage needed
Across the U.S., many solar developers are including battery storage in new projects to maximise revenue potential. U.S. installed battery capacity is set to double this year to 30 GW with Texas and California installing the majority of projects, the EIA said in January.
Get the latest data on U.S. energy storage deployment in our?free market report.
Data centers and other LFL consumers require power day and night so growing demand will also require a rapid development of energy storage, Messercola said. EDF's recent projects include the 150 MW solar/300 MWh Milagro storage project in Dona Ana County, Texas, due for completion next year. EDF signed a PPA for the project with utility El Paso Electric.
LRE is also planning new energy storage facilities in Texas. Soaring load growth combined with rising generation capacity from intermittent clean energy resources rather than dispatchable fossil fuels will lead to "more intraday price volatility," the LRE spokesperson noted.
This will lead to "more opportunity for energy arbitrage for storage resources,” the spokesperson said.
Reporting by Neil Ford
Editing by Robin Sayles
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