The tech sector’s rush to guarantee electricity for giant new data centers optimized for artificial intelligence is pushing Amazon, Google, Microsoft and other tech infrastructure providers to consider dedicated power sources that are “behind the meter,” bypassing long grid connection times.
Those arrangements — along with the sector’s growing reliance on natural gas generation — raise doubts about the tech giants’ ability to deliver on its aggressive emissions reduction pledges.
“What has to go behind the meter is something that is baseload, and that thing is probably going to be gas,” said Benjamin Baker, managing partner at infrastructure investment firm GDEV Management.
Close to 80 percent of planned projects being built behind the meter — next to or on data center campuses — use natural gas generation technology including fuel cells and heavy duty turbines, according to an analysis by Rabobank.
Microsoft, for example, has contracted with Nscale in West Virginia for an 8-gigawatt natural gas microgrid to power an AI campus, starting in 2027. It has also proposed a deal with Chevron and Engine No. 1 for another 2.5 gigawatts in Texas.
The West Virginia project alone would boost Microsoft’s annual emissions by 40 percent, estimates research firm Cleanview. The U.S. industry’s rapid buildout would release at least 24 million metric tons of additional greenhouse gases into the atmosphere annually and drain at least 731 million cubic meters of water, according to an analysis by Cornell University.
Climate target pressure
Microsoft’s natural gas contracts have sparked speculation that it is stepping back on its pledge to match its annual electricity consumption with carbon-free power. The company said it is taking a “portfolio approach” to the energy it sources for data centers and remains committed to its goals.
“Fulfilling our carbon commitments requires ongoing effort to review and refine our approach as markets mature, policy environments evolve and emerging innovation solutions scale,” said Microsoft Chief Sustainability Officer Melanie Nakagawa in one of several statements shared with Trellis.
Although Microsoft’s situation has drawn the most public scrutiny in recent weeks, Amazon and Google face the same dilemma: how to reduce emissions while collectively spending more than $130 billion per quarter on new data center construction and opting for the most readily available electricity supply.
“There is plenty of unabated natural gas being proposed,” said Ryan Kammer, research manager for industrial innovation with energy strategy nonprofit Great Plains Institute. “We need an all hands on deck approach to find opportunities to lower the carbon intensity.”
Natural gas + carbon capture
Those concerns have inspired Amazon, Google and Microsoft to contract with geothermal and nuclear developers, but gas-fired power plants equipped with carbon capture have the most potential to scale, according to a March analysis by Boston Consulting Group (BCG).
These projects can deliver electricity in less than three years if they are behind the meter, are still eligible for tax incentives and don’t have the permitting baggage faced by solar and wind projects under the current U.S. administration.
“The advantage is speed, at least on paper,” said Alex Dewar, managing director and partner with BCG. “The downside is that you don’t have the grid as a backstop.” For that reason, BCG anticipates that many behind-the-meter projects will eventually become grid-connected.
Natural gas plants abated with carbon capture have a higher carbon intensity than geothermal or nuclear generation, but they reduce life-cycle emissions by more than 70 percent on a per-kilowatt basis compared with unabated natural gas generators, according to the BCG analysis.
Carbon capture and storage isn’t available everywhere, but significant storage capacity exists in the Gulf Coast, parts of the Midwest, Oklahoma and West Texas.
So far, Google is the only big cloud company to have announced a power purchase agreement for natural gas power abated with carbon capture. But other developers are considering contracts for natural gas plants mainly intended for use by a nearby data center, said A.J. Simon, director of industrial decarbonization at Carbon Direct.
“Natural gas is here to stay for another decade or two, but probably in smaller quantities than renewables,” he said.
Not created equal
Another option being considered by data center developers is environmental attribute certificates, which companies use to offset emissions from technologies that are difficult to abate. That means a company can get the emissions-reduction credit for a project that isn’t necessarily at its site.
Meta is using this approach to neutralize its steel purchases, and more companies are interested in a similar market for natural gas power plants that include carbon capture. “The buyers, the hyperscalers, the developers are realizing that their demands are outstripping the ability for the grid to bring renewables online,” Simon said.
Beyond the big tech companies, the power selected for new data centers will have a ripple effect on the climate targets of corporations making big bets on AI and digital services.
“Any corporation that is deploying AI at scale, and is effectively driving up the demand for compute [technology], ought to be assessing the impact of that activity, but right now we don’t have any metrics for doing that,” BCG’s Dewar said.
“Sustainability teams should be asking data center co-location providers, hyperscalers and AI labs about their exposure to natural gas,” said Boris Gamazaychikov, a former Salesforce sustainability professional who is an expert on AI and sustainability. “There are also a lot of non-sustainability related risk management types of concerns that can be brought, which is only underscored by what is happening in Iran.”
If your company is concerned about its exposure, here are four factors to consider:
- If a data center isn’t grid-connected it can make it more difficult to gather data for emissions calculations.
- If a data center doesn’t have a plan to include carbon capture technology today, is the site is conducive to a future installation — and is there a storage or transportation network in place to support it?
- What type of natural gas generation technology is being used? Fuel cells are generally less impactful than turbines from an air pollution perspective.
- Is the community in which a data center is being built actively involved in the planning process?