New Jersey law will let data centers pay for home energy upgrades

New Jersey is offering data centers an unorthodox way to get the power they need: by bankrolling home energy upgrades.

Last week, Gov. Mikie Sherrill (D) signed a bill that will create a first-of-its-kind program to incentivize data centers to secure clean capacity by reducing demand elsewhere on the grid. Data centers will be able to pay for households to replace their energy-hogging electric-resistance space and water heaters with much more efficient electric heat pump appliances — or to install rooftop solar and batteries.

The scheme could lower electricity bills for potentially millions of households statewide by hundreds to thousands of dollars annually. In return, the data centers would get priority in the interconnection queue.

“New Jersey just set a national precedent,” said Ari Matusiak, CEO and co-founder of nonprofit Rewiring America, who served on Sherrill’s transition team. The law, called the Data Center Fair Share Act, ​“is a blueprint for how policymakers can start to think about households as energy infrastructure.”

Nationwide, utilities propose to spend at least $1.4 trillion on capital expenditures through 2030, according to consumer advocacy nonprofit PowerLines. ​“A meaningful percentage of that could be directed to households,” Matusiak said.

Rewiring America first championed the approach last September, when it released a report finding that installing heat pumps, solar, and batteries in homes could offset more than 93 gigawatts of anticipated AI-driven demand nationwide. The nonprofit provided input on New Jersey’s bill, but it ​“very much had its own momentum,” according to spokesperson Alex Amend.

Using what’s known as ​“voluntary demand-reduction trade programs” established at the utility-level, data centers will be able to hire companies that can aggregate households and other utility customers into a virtual power plant. The utility would then likely work with the aggregator to verify the resulting capacity will be there when the data center is built, according to Amend.

Power-hungry data centers have been pushing up electricity prices in the PJM Interconnection grid region, which includes New Jersey as well as a large swath of the Midwest and mid-Atlantic. And utility customers have been left footing the bill.

New Jersey’s law aims to put the kibosh on that. In addition to the household program, the measure will create a new rate class for data centers, following the lead of Minnesota, Oregon, and Virginia. The move is meant to ensure data centers pay for their own energy use and associated grid infrastructure.

Other states are looking to push data center dollars into home energy upgrades. California, Colorado, Illinois, Pennsylvania, ​“and likely many others” are considering legislation, Beck said. On Tuesday, New York joined the list: Gov. Kathy Hochul signed an executive order that halts data center development for up to a year and directs regulators to consider requiring data centers to fund distributed energy resources and battery storage.

Hyperscalers are staying mum on New Jersey’s initiative. Microsoft declined to comment, Google did not respond in time, and Amazon told Canary Media that it had no stance. 

Still, Big Tech companies are increasingly keen to leverage households as energy assets.

Last month, Google announced a pioneering agreement with the virtual power plant provider Voltus for up to 100 megawatts. Also in June, Tesla, Sunrun, and Renew Home broadcast that they would provide a whopping 16 gigawatts of power across data center hot spots in the U.S. using distributed energy resources. The power will be ​“ready in months, not years,” according to their website.

In New Jersey, Rewiring America estimates that of about 2 million single-family homes, roughly 85,000 have electric-resistance heating systems and 422,000 have electric-resistance water heaters. ​“But all households could benefit from home batteries and, in most cases, rooftop solar as well,” Amend said. ​“So the potential is enormous.”

New Jersey’s public utilities regulator has one year to flesh out the standards of the state initiative for utilities. Utilities then have 180 days to submit proposals for their individual programs.

Enrolled households could start getting data center–funded heat pumps, solar panels, and batteries as soon as mid-2028, according to McKenna Beck, policy analyst at the nonprofit Natural Resources Defense Council, which helped create the bill’s framework.

“These resources will directly lower bills for households and communities in which the data centers are built,” Beck said. ​“It’s incredibly exciting.”