Report: Data centers could cause wholesale electricity prices to spike in Delaware

Why Should Delaware Care?
For almost a year, Delaware residents and lawmakers have wondered how data centers would affect the local grid. A new analysis suggests they could significantly raise power bills and increase the likelihood of blackouts if nothing is done to improve infrastructure. 

A new analysis of Delaware’s electricity market suggests that the construction of new data centers could cause power bills to spike.

The analysis – completed by Siemens Energy on behalf of the State of Delaware – found that a doubling of energy demand by 2029 could cause the average wholesale electricity price in the state to rise more than 80%, according to a summary of the analysis released by the Delaware Department of Natural Resources and Environmental Control.

Delmarva Power said in January that winter peak electricity demand within its Delaware coverage area would likely double if five data centers planned for New Castle County are ultimately built.   

“It’s very concerning,” said Delaware Public Advocate Jameson Tweedie, who is responsible for representing the public in state decisions about energy policy. 

The new report analyzed what is called “locational marginal prices,” which is the cost to utilities to buy an extra amount of electricity at a given moment and within a specific area. 

Those wholesale prices do not directly show up on power bills, Tweedie noted. Still, their price spikes often align with increases at local energy auctions, which ultimately determine consumer prices.

Tweedie said the new Siemens report is “not an exact prediction,” but asserted that it describes a scale of potential risks. He also argued that requiring data center companies to generate their own power could soften these effects. 

While the report analyzes the supply of electricity in Delaware, Tweedie noted that consumers are also paying more money on their energy bills for utilities’ distribution and transmission costs.

“Every single one of these things are hitting rate payers all at once,” Tweedie said.

The Siemens analysis suggests that locational marginal prices of electricity would be especially high in southern Delaware – even though there are no data centers proposed there – because of congestion in the energy transmission lines. 

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Jeremy Tucker, spokesman for the Delaware Electric Cooperative, said the utility would certainly be affected by a wholesale price increase, but it is hard to predict exactly how based on the report.  

Tweedie said Delmarva Power averages out its prices across the state, so the effect on power bills from the utility would be the same regardless of where a customer lives. 

Neither Delmarva Power nor Delaware Municipal Electric Corporation immediately responded to requests for comment. 

Preventing the worst-case scenario

Delaware’s environmental agency commissioned the analysis as part of an ongoing debate over a proposal for a so-called large-load “tariff,” which would impose higher fees for electricity on facilities that consume massive amounts of electricity, such as data centers. 

The proposal comes as energy prices have already been rising across the region, as data centers in other states push up demand.  

Delaware is in the same regional electricity grid as Virginia, Pennsylvania and Ohio, which have all seen a boom of new construction of data centers because of the growing computing demands from artificial intelligence applications.

Delaware’s proposed large-load tariff would set a new electricity rate class for data centers and require them to pay deposits to cover the engineering and equipment cost of electrical infrastructure improvements. 

But Tweedie said the tariff cannot do anything to shield other ratepayers from the potential spikes in the wholesale cost of electricity.

“That’s the basic supply and demand market,” Tweedie said. “And so unless we get a huge amount of new generation, for example, unless large loads are required to bring their own generation… that is a very hard issue to tackle.”

There are some efforts to produce more power in Delaware. 

The state legislature last fall convened a Nuclear Energy Task Force to discuss the possibility of building small modular nuclear reactors, and Delmarva Power leaders have asked lawmakers to allow the utility to once again produce power. 

And some plans for new data centers have stalled after the Delaware Department of Natural Resources and Environmental Control ruled that the Coastal Zone Act does not allow those facilities near the Delaware shoreline.

The DNREC ruling will likely be appealed to higher courts, but it could take years to fully resolve. 

The Siemens analysis found that if fewer new data centers are built, their impact on energy demand would be lessened. 

According to the report, wholesale energy prices of electricity in Delaware could still rise by 9% if no data centers come to the state because of potential demand spikes regionally. And they could go up by an additional 9% if Delaware’s largest data center proposal was the only one constructed.

Starwood Digital Ventures, the company behind that data center proposal, did not respond to a request for comment.