How Microgrids Co-located with Data Centers and in Phases Can Meet Energy Demand

A report from microgrid modeling technology firm Xendee, “A Guide to Meeting Energy Demand for Data Centers with Distributed Energy and Future Small Modular Reactors, ” found that deploying microgrids–including combined heat and power (CHP) and distributed energy resources (DER)–for data centers using a multi-year approach would reduce reliance on utility electricity and lower costs.

A single-step approach that involves utilities upgrading their distribution systems and power plants to meet increasing loads fails to account for sustained demand growth or developing energy technologies such as small modular reactors (SMR), said Michael Stadler, chief technology officer at Xendee, which provides microgrid modeling software.

In addition, increasing power demand requires expensive upgrades to utility cables and transformers, and this can’t be done quickly, he said. New transmission projects take about seven to 10 years to develop, approve and construct.

Could expensive utility grid investments become stranded?

Because of these delays, costly grid expansions could become stranded investments for utilities.

While SMRs won’t be available for five to 10 years, a multi-year approach could provide a pathway to deploying them when they are available, Stadler said.

Under this approach, current energy needs would be met through existing DERs—such as renewable generation, battery systems and CHP. Second, as SMRs become viable, they can be integrated to provide scalable, low-carbon baseload power. “This approach addresses immediate challenges while future-proofing data centers for sustained growth,” he said.

The DERS provide predictable operating costs, offer immediate economic benefits and serve as a hedge against price volatility.

The study found that relying on utility power would be the most expensive choice. In one scenario, using utility power yielded a levelized cost of energy (LCOE) of

$0.4704/kWh, compared to a multi-year scenario that phased in resources. That option produced an LCOE of $0.0383/kWh.

The value of microgrid flexibility

Brian Nelson, US Renewables Segment Manager at ABB, a technology company focused on automation and electrification, agreed that microgrid flexibility is an important characteristic that can meet increasing power demands.

“Loads change, electricity rates change, the grid changes and technology never stands still.  Microgrids enable flexibility to ensure the needs of customers can be met in perpetuity,” he said. Microgrids can also help reduce power bills by avoiding demand charges, maximizing renewable energy utilization and providing grid services, he said.

John Glassmire, vice president for digital enablement and transformation in North America at Hitachi Energy, said data centers should take a multi-pronged approach to meeting rising energy demand, and that microgrids are an important part of that strategy.

The advantages of providing utility grid services

Also key to meeting growing energy demands are transactive solutions that can provide grid services, especially in areas where the grid is congested. Glassmire pointed to regulatory advances such as FERC 2222 that allow DERS to offer utility grid services, including load flexibility, battery storage and distributed generation.

Focusing on both sides of the meter is also important, Glassmire said.

“As AI and advanced analytics continue to accelerate into planning and operations, modern evolutions of microgrids - such as energy hubs that provide value on both sides of the meter - can play a role in future-proof, comprehensive investments at overall lower cost,” Glassmire said.

Not only do microgrids, deployed over a number of years, reduce costs. They help data centers meet decarbonization goals and boost the efficiency of investments, said Stadler.

“This approach represents a paradigm shift in microgrid planning, offering a flexible, scalable blueprint for sustainable and resilient energy infrastructure tailored to both high-cost and low-cost regions,” he said.