The US’s largest power grid is under AI — and no one is happy

We pity PJM Interconnection. For decades, grid operators have been working quietly and in the background, matching electricity demand with supply. At the time, customers enjoyed low electricity prices in the United States.

That’s not the case anymore. Politicians, businesses, households, power companies think it needs fixing. Even PJM agrees.

PJM released a white paper this week that said the district has “years, not decades” to make radical changes to the way it operates. “The current situation is untenable,” PJM CEO David Mills wrote earlier in the report.

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

This 70-page report is a navel-gazing exercise. But despite a thorough examination, not everyone is convinced that the organization is up to the task of reforming itself. One utility, American Electric Power, is considering phasing out PJM entirely.

“The current state of PJM’s operations and the stakeholder approval process does not give me much hope that these issues will be resolved anytime soon,” said Bill Fehrman, CEO of AEP, in an earnings call Tuesday. “In fact, if something isn’t done now, I expect we could be having these same conversations in 10 years. The PJM market did very well when supply exceeded demand, now we’re in a very different time.”

Here’s what changed

Cloud computing and AI have begun to squeeze PJM’s existing manufacturing capacity. Against the backdrop of growing demand, PJM suspended plans in 2022 for new generation sources to be connected to its grid, citing years of backlogs. Just as demand for electricity began to grow for the first time in decades, the grid operator prevented new sources from even applying for connection.

PJM cannot be entirely blamed for the long backlog. Many interconnection requests are duplicates – developers will propose the same project in different areas of the grid to see which gets approval first. PJM’s sclerotic approval process means that of the projects worth more than 300 gigawatts on line by 2022, only 103 gigawatts have finally signed agreements, and only 23 have been connected so far. Most developers have backed off rather than wait it out.

Demand in the region remains so high that, since PJM recently reopened the line, power companies and project developers have filed more than 800 interconnection requests for 220 gigawatts of new capacity. PJM may have been able to stop new requests, but it did nothing to reduce the need for new connections.

Here is what PJM is proposing

In its white paper, PJM proposed three approaches. One will need resources and power generators to make large, long-term commitments. (PJM currently requires them to commit to providing a certain amount of electricity for three years.) The second option would change reliability guarantees to customers – those who pay the least could have their electricity cut off first. The final decision would try to move PJM closer to the real-time market, where supply and demand determine prices, without completely eliminating stability in long-term contracts.

It’s hard to see how PJM comes out looking good in any of these situations.

First, the way PJM operates its market has locked it into a three-year concept. That proved to work when natural gas power plants replaced coal-fired generators, but today solar and batteries can be installed two or three times faster. In addition, the shortage of natural gas engines means that power plants planned today will not be able to install equipment until the early 2030s. Also, the prices of turbines have increased significantly after the demand for hyperscalers. Given those facts, it’s hard to see providers wanting to commit to an even longer timeline.

The second option would result in PJM dividing its property, its customers, or both into groups of “haves” and “have-nots.” For individuals and small businesses in an age of rising utility bills, it’s hard to see them being happy about reduced service. Politicians are caught up in rising energy prices and anti-data center animus, so they are unlikely to support this.

The latter approach is more nuanced, but it also feels like PJM is trying to be all things to all people. It’s the kind of plan that seems like it should appeal to big utilities like American Electric Power, giving them a chance to play short-term markets to make more profits while benefiting from predictable long-term contracts — to have their cake and eat it, too. But if AEP, one of the biggest utilities in the PJM area, isn’t happy with the menu in front of it, it’s hard to see how PJM could choose it either.

The growing demand for data centers has recently occurred to keep pace with disruptions from renewables and batteries, which continue to drop in cost. Those trends are now colliding with an organization that doesn’t want – or doesn’t know how – to change the way it works.

PJM may be thinking about its white paper I’m guilty I could buy time. But with politicians threatening prices and utilities failing to participate in the future, the grid operator may not have years to fix things. It looks messy for the next few years.