By reducing the need to travel, automating production, enabling best practices to be generalized, and facilitating administrative procedures and financial transactions, digitization is leading us towards an economy that is more sober in terms of energy consumption and environmental pollution. Nevertheless, it requires a steady supply of electricity, which digital service providers are securing through long-term contracts, and even by acquiring stakes in the electricity industry.
Energy for the 3.0 Economy
If we consider just the annual electricity consumption of a smartphone (around 10 Wh/d x 365 days = 3.65 kWh for its daily recharge, according to CDE), with an estimated 70 million smartphones in France, we reach the figure of 255 GWh per year, which may seem negligible compared to the 445,700 GWh of total consumption in 2023. Nevertheless, the energy needs of the digital economy are not limited to smartphone consumption. They also include the energy requirements of the entire infrastructure used by smartphones, PCs and desktops, and servers dedicated to storing the data consulted. When designing data centers, significant energy savings can be achieved by adopting strict rules for power supply, cooling and heat recovery, not to mention environmental sustainability requirements (see Schneider electric).
The fact remains, however, that galloping digitization and the development of Artificial Intelligence are driving massive investment in new data centers, whose energy consumption - still reasonable on the scale of the countries that host them (around 1% according to the International Energy Agency) - is growing steadily. It is also a source of network problems, due to the geographical concentration of these needs. We need, and will increasingly need, large quantities of energy delivered to specific grid nodes on a more regular basis than renewables can provide. So, it's not surprising to see digital giants securing their supplies through long-term contracts with controllable power plant operators, and even, for some, by investing in the power industry.
Microsoft and Constellation sign contract at Three Mile Island
On March 28, 1979, reactor n° 2 at the Three Mile Island nuclear power plant in Pennsylvania suffered a partial meltdown following a malfunction in its cooling system. It is currently being dismantled by EnergySolutions. Unit n°1 continued to produce until 2019, when it was shut down for lack of competitiveness. This unit will be given a new lease of life with the contract signed between its new owner (Constellation) and cloud computing giant Microsoft. The agreement will enable Microsoft's data centers to be powered for the next 20 years by the site's 800 MW generating capacity. Before restart, scheduled for 2028, Constellation will invest $1.6 billion to restore Unit 1 (turbine, generator, main power transformer and cooling and control systems). The contract with Microsoft guarantees to Constellation future revenues to cover the investment required.
Amazon and Google invest in Small Modular Reactors
Amazon and Google have also turned their attention to nuclear power, but on the scale of small modular reactors (SMRs). Amazon has invested $500 million in start-up X-energy, which is developing SMRs. A first project, in Washington state, involves the construction of four units for a total of 320 MW, with an option to expand to 960 MW. With similar projects in other US states, the aim is to deploy 5 GW of nuclear power by 2039. Amazon also announced in March 2024 the purchase of a data center in Pennsylvania that is contractually linked to the Susquehanna nuclear power plant owned by Talen Energy in Pennsylvania.
This move towards SMRs also includes Google. It has signed an agreement with Kairos Power. The aim is to secure 500 MW of nuclear power capacity by 2035. Under the terms of the Power Purchase Agreement, SMRs will be installed in the service areas of Google's data centers.
And in early December 2024, it was Meta's (Facebook, Instagram, WhatsApp) turn to launch a call for tenders to identify nuclear power developers who could help it achieve its AI and sustainability innovation goals.
The disadvantages of vertical integration
Vertical agreements either contractually or structurally combine two stages of the production chain. Whether contractual (as with Microsoft and Constellation) or structural (as with Amazon and X-energy), upstream integration operations present clear advantages for the parties to the agreement. But they have at least two disadvantages for the rest of the economy.
The first is to reduce competition on wholesale electricity markets and drive up prices. This is because the agreements withdraw a certain volume of product (in this case, MWh) from the markets on which the competitors of the signatory companies are supplied. They can thus erect barriers to the entry of new companies or to the expansion of existing ones. The damage can be all the greater in that, by automatically directing large volumes of electrical energy to certain users, the operations initiated by Amazon, Google and Microsoft de facto reduce the liquidity of the wholesale energy market. As the signatories have rationally chosen partners with low electricity production costs, other wholesale electricity buyers face a more expensive residual supply.
The second disadvantage is the lower participation in financing the electricity network shared by all users. Indeed, data centers located near the power plants that supply them manage to bypass the network and they therefore do not contribute to its financing.
For all these reasons, competition authorities issue guidelines on vertical restraints, applicable to all industries, and may have to rule on the merits of certain operations. With regard to data center, it is interesting to note that in November 2024 the US Federal Energy Regulator (FERC) rejected an extension from 300 to 480 MW of the capacity reserved in the Talen-Amazon agreement mentioned above. FERC ruled in favor of American Electric Power and Exelon, who argued that the agreement would allow data centers to enjoy the benefits of the transmission grid without having to pay for them. This rejection could slow down the enthusiasm for colocation of data centers and power providers.
1 A notable exception is Ireland, which, with around a hundred data centers, has seen the electricity consumption of these facilities exceed that of the residential sector by 2024.
