Thematic Spotlight: Data Centres Charge Ahead Despite Regulatory Roadblocks

The convergence of AI-driven data centres with utility infrastructure has become a critical trend. However, recent regulatory developments highlight challenges. Last week, the Federal Energy Regulatory Commission (FERC) blocked a key Interconnection Service Agreement (ISA) that would have allowed Amazon Web Services (AWS) to build a 960 MW data centre at the Susquehanna nuclear facility. This decision has raised concerns about the viability of co-locating data centres at power plants, especially nuclear, due to concerns over grid reliability and fair cost distribution.1

Despite the setback, analysts argue there is still a path forward. Future agreements could address FERC’s concerns by implementing enhanced metering, backup power solutions, and cost-sharing structures. These adjustments might help future projects avoid regulatory hurdles while opening up opportunities for new collaborations between tech and utility sectors.2

Accelerating project timelines, or “time to power,” is one of the primary drivers behind data centre co-locations with power plants. Traditional grid interconnection delays can range from four to seven years in high-demand areas. By co-locating with power plants, particularly those with existing transmission capacity, tech companies can cut down deployment time, allowing them to meet the fast-growing power needs of AI applications.3

The market’s reaction to FERC’s decision has generated potential buying opportunities among diversified utility stocks. Companies like Constellation Energy, Vistra, and PSEG, with nuclear and data centre partnerships, may face volatility but could benefit from eventual regulatory clarity. Strategic adjustments, including alternative models like front-of-the-meter virtual power purchase agreements (vPPA), might allow these partnerships to advance by bypassing some regulatory hurdles.4

While regulatory challenges persist, data centres co-located at power plants offer unique strategic advantages for the AI industry. With proactive regulatory adjustments, this model could become an essential part of meeting future data and energy demands.

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Forecasts are not guaranteed and undue reliance should not be placed on them. This information is based on views held by Global X as at 12/11/2024. Investing involves risk, including the possible loss of principal. Diversification does not ensure a profit nor guarantee against a loss.

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This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information is not intended to be individual or personalised investment or tax advice and should not be used for trading purposes. Please consult a financial advisor or tax professional for more information regarding your investment and/or tax situation.