Electricity Is a “Waste Byproduct”? How AI Data Centers Help Balance the Renewable Energy Equation

by Duncan Simmons

“Wind power projects aren’t in the business of producing electricity – they generate Renewable Energy Credits. Electricity is the byproduct. We’re building next to wind farms to use their byproduct.” – Data Center Developer

Solar panels and windmills dotting the landscape paint a vivid picture of our shift towards renewable energy. But good policy intentions go awry when developers respond to poorly-structured incentives, taking government subsidies without regard for decarbonizing the grid.  Instead of green energy, we end up with market distortions such as negative electricity prices and redundant projects built in power-saturated areas.

These problems could get worse with the surge in renewable projects expected under the Inflation Reduction Act.  A group of forward-thinking entrepreneurs are responding to the opportunity with an integrated strategy combining sophisticated green power sourcing with construction of massive data centers, the huge air-conditioned warehouses full of electricity-hungry servers that power the internet.

The Green Energy Challenge (and Opportunity)

As indicated by the earlier quote, not all green energy is used effectively. The map below highlights that the Great Plains, with a very low population density, have significant wind resources. However, adding or upgrading high-power transmission lines is both expensive and politically challenging, causing congestion and occasionally creating significant pricing differences between aggregation hubs and power production nodes (“basis risk”). Moreover, wind and solar renewable energy is intermittent, requiring backup capacity for calm days and nights.

Over the next decade, the US is set to grow renewable capacity by 500GW, taking renewables to over half of generating capacity. This will place additional pressure on transmission/peaking capacity. A group of forward-thinking entrepreneurs are developing services and infrastructure to utilize this cheap, clean energy that might otherwise be stranded.

Data Centers: Big and Growing Demand for Renewable Energy

Data centers – the colossal, air-conditioned facilities housing the servers that power the internet – are infamous for their voracious electricity consumption. Currently, they account for as much as 5% of US power generation and are growing over 10%. Traditionally, data center operators preferred to locate near cities so their severs will have for faster response times to process transactions or serve video streams.

However, the boom in Artificial Intelligence applications is shifting designs. These applications require massive amounts of power, but do not necessarily need to be located close to end users. This shift in power and network requirements fuels interest in rural locations near prime wind resources. In addition, the giants of the Cloud industry (Microsoft, Google, Facebook, and Amazon) are increasingly demanding clean energy to fulfill their net-zero pledges, contributing to the push for greener data centers.

Ending “Greenwashing”

Most claims that data centers are “100% powered by green electricity” are flawed. Many of these assertions are supported by the purchase of Renewable Energy Credits (RECs) in distant locations that may not deliver useful power to consumers. Some companies go a step further with Virtual Power Purchase Agreements (VPPAs) supporting net new renewable projects on the grids they use, however, this exposes both parties to significant financial risk if transmission bottlenecks occur, and it ties up capital to post collateral.

Moreover, data center customers increasingly demand clean energy supplies around the clock. Both Google and Microsoft, for example, have pledged to buy only clean energy 24/7 by 2030.

Making It Work

Making this transition involves several strategies. Latency insensitive workloads can move from cities to locations with excess renewable energy resources. In addition, mixed sources of energy should be incorporated, including wind, solar, hydro, geothermal, battery storage, and green hydrogen can provide 24/7 renewable energy.

Software can also help match power demand with power availability. Google, for instance, already schedules workloads for times when there is abundant renewable energy. Risk mitigation strategies, like structuring Sleeved PPAs or utilizing behind-the-meter power sources, are also vital. Companies like Microsoft are signing deals with innovative power providers to secure 24/7 renewable energy.

Rising to the Challenge

Despite these complexities, the data center industry is responding. Compute North launched in 2017 with a vision of integrating power and compute capabilities. Unfortunately, the company’s financial sponsor withdrew during the market meltdown in 2022, but key executives are planning a re-launch with a revamped financial structure.

Similarly, Applied Digital is constructing high-performance data centers in the Plains states, leveraging their expertise in procuring electricity and building energy-dense facilities. Working with wind developers, Applied Digital is securing long-term, low-cost green energy to enable AI model training and image processing workloads that do not require low latency.

CleanArc Data Centers, launched in early 2023 by industry veteran Jim Trout and backed by renewable giant 547 Energy, is another promising player. They have assembled a team of data center and energy procurement experts to provide a comprehensive solution to the largest, most demanding Cloud buyers.


The impending massive increase in renewable energy capacity presents both a challenge and an opportunity. Data centers are ideal customers for renewable projects given their substantial energy consumption and the changing application architectures that allow them to co-locate in rural areas. Companies that are flexible and innovative will capture substantial value by gaining access to large increments of capacity, lowering their costs, and making significant progress towards their environmental goals.

Originally appeared in Linked In: https://www.linkedin.com/pulse/electricity-waste-byproduct-how-ai-data-centers-help-balance-simmons%3FtrackingId=OO6mfQGWmPh%252BxMx2fpPD2Q%253D%253D/?trackingId=OO6mfQGWmPh%2BxMx2fpPD2Q%3D%3D