The Largest U.S. Power Grid Faces Strain from AI — and Nobody is Pleased

Consider the PJM Interconnection’s predicament. For years, this grid operator functioned quietly, balancing electricity supply and demand, and offering customers some of the most affordable electricity in the country.

That time has passed. Politicians, businesses, households, and power firms now believe it requires a major update. PJM itself concurs.

This week, PJM published a white paper warning that the region must implement essential changes within years. PJM CEO David Mills stated in the foreword, “The current situation is not tenable.”

Typically, such reports would reach a select group of lawmakers and regulators. Still, PJM’s area includes many data centers, especially in Northern Virginia. Consequently, PJM’s changes will impact the tech sector.

The 70-page document dives deeply into introspection. Despite this, doubts remain about PJM’s capacity for self-reform. American Electric Power is contemplating leaving PJM.

“The current state of PJM’s performance and stakeholder approval process does not give me great confidence that these issues will be resolved anytime soon,” said AEP’s CEO Bill Fehrman during Tuesday’s earnings call. “In fact, if nothing changes now, I expect we could still be having these same conversations in 10 years. The PJM market worked very well when supply exceeded demand; we are now in a very different time.”

Here’s what changed

Cloud computing and AI are challenging PJM’s existing capacity. With demand rising, PJM paused applications in 2022 for new generating sources to connect to its grid due to a backlog. Just when the need for electricity was increasing for the first time in decades, the grid operator halted new connection applications.

PJM isn’t solely at fault for the backlog. Many requests were duplicates, as developers proposed similar projects across different grid areas to see which got approved first. PJM’s slow approval process meant that of the over 300 gigawatts of projects queued in 2022, only 103 gigawatts signed agreements, and only 23 gigawatts were connected. Most developers opted to withdraw.

Demand remains so high that, upon reopening its queue, PJM received more than 800 interconnection requests for 220 gigawatts of new power. While PJM could delay requests, it didn’t address the rising demand for interconnections.

Here’s what PJM is proposing

PJM’s white paper suggests three paths. First, utilities and power generators might need to make larger, longer-term commitments. (Currently, they commit to supplying electricity for three years.) The second option adjusts reliability assurances for customers — those who pay less might face earlier power cuts. The last option proposes a shift toward a real-time market for price determination without fully abandoning long-term contract stability.

PJM