Renewable energy, not data centers, cost consumers

Louisiana may stand to profit both in having lower electricity rates and increased economic growth, from the policy stupidity of other states

As the number of data centers explodes throughout the country, only now is Louisiana starting to gain traction with the proliferation. The state ranks 35^th in number with ten operational (out of 1,926 in the country), but with nine under construction is third-most in ratio of being built to existing yet is close to the bottom of ratio of announced to existing (even if the two announced are massive in size). It’s 23^rd in space and 13^th in wattage used, so it punches above its weight and both totals should increase sharply within the next couple of years (the Hyperion project alone when expanded to its full capacity will increase wattage by over two-and-a-half times all existing state center output).

One reason why Louisiana is off to a good start is its energy prices. Among industrial users, the most recent (August) pricing ranked it lowest in the country. At 6.28 cents per kilowatt/hour, it’s almost a third less than the national average of 9.06, and well below the costs of the top states in numbers of centers (only Texas is close).

Some analysts worry whether the explosion in computing power reflected in center presence isn’t driving up electricity costs for all. As it is, (with the exception of Texas) the top states in centers have seen the cost of electricity for all users rise faster than the national average year-over-year. As a whole, the U.S. saw an increase of 5.8 percent, but the top five in number of centers saw an increase closer to 9 percent

There’s a reason for that: overreliance in higher-cost states on renewable resources for power, which end up costing more than fossil fuels because of their intermittency. Half plus two of the states have renewable portfolio standards, which set targets by regulated utilities as to what proportion of their output must come from renewable resources, where this forced usage drives up the price in most instances. In the states with an RPS, the average cost is 16.63 cents, while for the non-RPS states it’s only 11.48.

As things stand, the top eight states in number of centers all have an RPS regulation, which average just over 13 cents. Those ranked nine through eleven, without an RPS, average 12.61. Then the next six have an RPS and average 16.54. Couplets follow – without RPS, with RPS, without RPS, and these average, respectively, 11.70, 12.19, and, and 11.54.

You get the picture: non-RPS states mostly are lower than states with an RPS. Further, states with more data centers do have higher rates – in fact, the range in amount along the top eight goes from 315 to 70, the next nine from 65 to 30, and the remaining six from 30 to 26 – but RPS presence seems to operate independently.

Applying this to Louisiana, even if there may be a small bump up in electricity prices from data centers – Hyperion at its startup level supposedly will demand energy equivalent to a city the size of New Orleans, so even if suppliers can’t ramp that up fast enough to prevent a surge in demand not matched by increased supply, boosting rates – the already rock-bottom rates and absence of an RPS will keep their levels reasonable and attractive for economic development, including for data centers. So, ratepayers get to keep low rates – only North Dakota with its abundance of fossil fuels has a lower aggregate rate than does Louisiana – and have a comparative advantage that should attract disproportionately development.

As long as the Legislature and/or Public Service Commission continue to see the wisdom in rejecting any form of RPS, the real cause of higher rates, not data centers, which the state should hope come in droves.