Duke Energy agrees to explore a cleaner way to power data centers

North Carolina — like much of the U.S. — is in a high-stakes race to protect consumers and the climate from the data center boom. Without preventative measures, the energy-hungry facilities threaten to spike electricity prices and prompt a huge buildout of polluting fossil-fueled power plants.

Now, after lots of debate and little action, one concrete strategy to help fend off those risks is gaining some traction.

North Carolina’s biggest utility, Duke Energy, agreed late last month to evaluate what is known as a ​“clean transition tariff.” The idea is that data centers and other large electricity customers can connect to the grid while developing enough clean energy to meet their own demand, limiting their carbon footprints without burdening other customers.

“At least some of the large corporates have their own climate goals and want to be good ​‘grid citizens,’” said Nick Jimenez, senior attorney at the Southern Environmental Law Center. ​“If a clean transition tariff lets them pay the difference for resources that aren’t going to expose us to fuel risks and climate impacts, I think that’s terrific.”

The tariff is no panacea when it comes to mitigating data center risks, and it is far from a sure thing. Duke’s agreement to contemplate the scheme ​“in good faith” is buried in a side deal in a different regulatory case largely unrelated to data centers’ energy demand. Although that settlement agreement is endorsed by a number of parties — including the utility, large electricity users such as Google, and the Southern Environmental Law Center and other nonprofit advocates — it still needs approval from regulators.

Still, after months of discussion about the risks of data centers in a range of forums, from the utilities commission to a governor’s energy task force, the settlement agreement looks to be the closest anyone has come yet to advancing this particular policy.

“A lot of people would like to see a clean transition tariff,” said Chris Carmody, executive director of the Carolinas Clean Energy Business Association. ​“But to date, there hasn’t been any real progress.”

Weighing data center solutions

In North Carolina, and across the country, data centers to power the AI boom have sparked increasing controversy. A growing number of communities in the state are now trying to temporarily ban construction of the computer-crammed warehouses.

Concerns about AI’s energy demands have prompted the state’s decision-makers to search for solutions. Last October, regulators sat through hours of expert presentations about the issues surrounding data centers, which Duke predicts could make up over 80% of its future energy demand.

In and around those presentations, Duke advocated for its current case-by-case treatment of large-load customers and a massive new fleet of gas plants to meet exploding power needs.

But clean energy advocates and tech giants including Google had other ideas, offering a range of tools that might stop data centers from overwhelming the grid, unfairly raising costs on other utility customers, and spurring more reliance on fossil fuels.

Load flexibility, in which data centers pledge not to max out the grid 24/7, was one proposal. The concept of virtual power plants — in which Duke controls customers’ solar panels, batteries, and other distributed grid assets to mimic the value of a traditional power plant — was another. Stakeholders also suggested clean transition tariffs and mandatory mechanisms, such as large load tariffs, to ensure that data centers pay their fair share.

But the presentations were largely about gathering expertise and data. No real action resulted, though the North Carolina Utilities Commission did issue an order last week that called for even more information about Duke’s contracts with large electricity customers.

After those fall discussions, clean energy advocates seized on a different commission docket to gain momentum. In Duke’s bid to consolidate its two separate utilities in the Carolinas — an action that could benefit customers by reducing operational inefficiencies — the Southern Environmental Law Center and others reached the settlement with Duke that includes language on a clean transition tariff.

Endorsed by large energy users Nucor Steel, Google, and Walmart — along with the state’s consumer advocate, Public Staff — the side deal revives a plan bandied about nearly two years ago. Back then, some of these same parties announced with great fanfare that they would pursue a program to let big customers fund clean energy projects. But a formal proposal never came, and the reasons were never made public.

The settlement, if approved by regulators, would revive those talks, with Duke committing ​“to engaging with Google” on a ​“detailed proposal” for the clean transition tariff that the tech giant had advocated in testimony to regulators.

Google wants to enable new, around-the-clock carbon-free energy, according to its comments, not just pay for battery storage or nuclear power plants already poised to produce power on the grid. As an example, Google highlighted the tariff it crafted with utility NV Energy, which will spur 115 megawatts of around-the-clock geothermal power to supply the company’s data centers in Nevada.

Indiana and Minnesota are developing similar tariffs, the company noted. ​“The tariff is structured to accelerate the transition to a 100% clean energy portfolio in a way that insulates non-participating customers from increased costs,” Google said in the testimony.

Data centers supplying their own clean energy may have particular purchase in this moment, as the war in the Middle East underscores the unpredictability of fossil fuel supplies.

“Clean energy and storage are fixed costs,” Carmody said. ​“They are predictable and don’t have volatile prices. That’s really helpful in a world where gas, in particular, is a global commodity, and can soar up or down on any given day, depending on geopolitics.”

Tariff’s time crunch

The timeline for the potential tariff’s development is iffy. Duke wants to combine its two utilities by Jan. 1, 2027, and regulators could act on that proposal and side agreement by then — but they aren’t required to.

The Utilities Commission could also green-light the company’s long-term plan for over 12 gigawatts of new gas plants before any tariff is in place. A decision on that blueprint is due by the end of the calendar year.

Duke didn’t mention the clean transition tariff in its news release about the settlement. When asked about that provision, company spokesperson Bill Norton reinforced the agreement’s text.

“We look forward to continued engagement with Google on the evaluation of proposals for creative tariff designs that could facilitate investment in needed new resources,” Norton said in an email, ​“while also offsetting impacts on all customers.”

And while the Public Staff endorsed the deal, stating that ​“it is in the public interest, and should be approved,” its representatives offered no additional comment about the clean transition tariff when asked.

The longer that Duke and policymakers wait to develop a tariff, the greater the risk that North Carolina could lose out on economic development, Carmody believes. Tech giants and other companies with climate goals could set up shop where they have an easier time bringing renewables and their own facilities online.

“Large buyers have begun to look in other states, because they want clean energy, and there’s not a simple way to do that here,” Carmody said. Though he added, ​“Hope springs eternal.”