CPS Energy wants data centers, other big users to bring their own generation

The rapidly increasing pressure to provide electricity for data centers and other high-demand users could be eased by a CPS Energy pilot program that encourages energy-hungry customers to bring their own generation. 

The program — and others under consideration by the statewide electric grid operator — is a response to demand that’s projected to increase nearly 400% across Texas by the end of the decade as the state attracts more of the computing power needed for artificial intelligence and other aspects of today’s digital world.

“We’ve been anticipating that we may need some new tools to help customers’ desire, as well as things that are being contemplated at the state level,” said Elaina Ball, CPS Energy’s chief strategy officer. “This pilot is one of the solutions that we’ve been pursuing.” 

The effort by San Antonio’s city-owned utility is a microcosm of trends in the energy sector, she said, which have state grid operator the Electric Reliability Council of Texas also grappling with sharp growth in both commercial and residential demand.

The Austin-San Antonio area is in the crosshairs as some forecasts suggest it could be the world’s top data center market by 2030. 

Though experts suggest that only a fraction of the facilities on the waiting list to connect to the grid will actually be built, its growing backlog of requests is forcing ERCOT to overhaul its processes and experiment with new ideas. 

CPS Energy’s new service option is a natural response, Ball said. Under its pilot, CPS will provide natural gas for industrial users that bring their own energy generation. In  return, data centers and other so-called large loads could connect more quickly to ERCOT’s statewide grid.

Ball pitched the behind-the-meter generation pilot to the City Council in early March, saying it would “help exercise someone else’s capital to provide grid flexibility.”

“When customers bring their own generation, it does help the grid,” she said in an interview. “We’ve got less demand on the system. During times of tight demand, customers will be able to self-provide their power, which lessens the burden on the rest of the grid.”

The move comes as ERCOT is working on new rules spurred by the growth boom that’s projected to push demand to 410 gigawatts by 2030. That’s about 380% more than the current record demand of 85.5 gigawatts set in August 2023. The grid operator’s new rules under Senate Bill 6 are expected to be finalized and adopted later this year by the Public Utility Commission, which oversees ERCOT and most utilities in Texas.

The effort aims to leverage multiple stakeholders to identify and address the risks that come with the projected growth — focusing on allocation of transmission costs, grid reliability, load forecasting and effects on residential customers. Requiring large loads to be equipped with on-site generation is one potential outcome that CPS is attempting to prepare for with its program. 

Like CPS, the grid operator is exploring a proposal to offer faster grid connection to data centers bringing their own power plants. Data centers would be granted an allotted capacity below the full requested amount with the expectation that they would generate any additional power they need. Exceeding the capacity would result in automatic disconnection. 

ERCOT is also exploring incentives that would speed up the timeline for grid connections in exchange for control over customers’ power usage. The grid operator already has the ability to order data centers off the grid during emergencies, a power granted by a law passed last year. The new proposal would give ERCOT the authority to crank down or amp up electricity usage at any time, not just when there’s a risk to the grid. Both proposals are still in development. 

CPS Energy’s new service option pilot is in place for two years and open to 15 customers, though none are operating under the pilot yet. 

Large users bringing some of their own generation is nothing new, Ball said. Many of the utility’s large customers — hospitals, defense critical facilities, manufacturing facilities and data centers — already have their own backup generation. 

But diesel-powered plants have primarily been used for backup. Under its pilot, CPS will provide natural gas, which emits less pollution than diesel. It’s a way of “bridging means for (customers) to get that energy that they need,” she said, while the utility prepares the necessary infrastructure. 

The utility has been installing backup generators alongside the San Antonio Water System after the winter storm of 2021 that left customers in the dark and without water, leading to the deaths of at least 246 Texans. The generators are installed at key facilities across the water system. 

“If there’s power interruptions, we’re able to keep water moving through the system,” Ball said.

This year, CPS followed suit with other utilities and market participants and began charging “large load” users for the engineering studies necessary to connect to the grid. The city-owned utility defines a large load as 40 megawatts, enough energy to power 10,000 homes, while ERCOT’s large load threshold is 75 megawatts, comparable to the amount of energy required to power 18,750 homes. 

For potential CPS customers seeking up to 75 megawatts, engineering studies cost $75,000. For those that want more than 75 megawatts, the study costs $150,000. The fees are required per point of connection to the grid, with many large loads having multiple points.