Gov. Polis and many utilities say that data centers can benefit just about everybody in Colorado. But others fear impacts to rates and potential setbacks in reduction of emissions.
Under the umbrella of the energy transition were dozens of interesting, important stories in Colorado during 2024, including:
- Tri-State Generation and Transmission Association got the lifeline it so desperately needed to make the transition from coal in the form of $679 million in assistance from the federal government. Sen. Michael Bennet — a key partner in the Inflation Reduction Act sausage-making in D.C. in 2022 — was there to commemorate it. And United Power, itself independent of Tri-State on May 1, is getting $261.6 million.
- Pueblo talked a lot about nuclear — and inexplicably began cleaving itself from the renewable energy that had been very nearly the sole bright spot of its economy in recent years.
- Holy Cross Energy achieved 90% renewable generation for a month this fall.
- United Power broke ground on a natural gas plant, and Platte River Power Authority and everybody else laid plans similar plans for natural gas.
- Seeds were planted for geothermal to become a viable part of Colorado’s energy story in Vail, Steamboat and easily a dozen other places across Colorado.
Important stories — these and many others in this energy transition. But easily surpassing them was the story of data centers and their voracious hunger for energy. Could their looming demand derail Colorado’s decarbonization plans? Defenders say no, but they are not convincing. And will interests of ratepayers be protected?
Figuring out the public policy to balance public interests and private gain will be a major issue in the 2025 legislative session.
Three years ago, few people outside of Virginia’s data center alley were talking about data centers. In 2019, there was a half- or less-baked idea of a cryptocurrency mill in Pueblo. Later came a crypto outfit near Montrose.
The era of hyperscale data centers — hyperscale is often defined as having “massive” power needs — arrived in early 2022 when Microsoft purchased a 260-acre parcel in Aurora, south of DIA, for $63.5 million.
In February 2023, Mile High CRE, an online news site about commercial development, described the purchase as the first in metropolitan Denver for a hyperscale data center.
“Denver has an edge over more established markets like Silicon Valley or Northern Virginia in that cost of power, cost of land, and cost of construction are lower, environmental risks are not as high, and the central location grants access to a plethora of networks,” it said. What Colorado lacked, the article added, was a competitive incentive package.
In February 2024, State Sen. Kevin Priola introduced a bill that would have extended more tax breaks to data center developers. Big Pivots did write about that in a column that got broad play across Colorado. See: “Why do data center need tax breaks in Colorado? They’re coming anyway.” A few weeks later came news that the data center subsidy bill was postponed. It never got one committee hearing.
Colorado already has one hyperscale data center. It’s in Aurora, and Mark Jaffee of the Colorado Sun broke the story about QTS in October 2023. (Big Pivots was too busy on a series about water and urban landscapes to chase it).
Two guest columnists in Big Pivots weighed in on the value of data centers. Morey Wolfson, a one-time staffer at the Colorado Energy Office and at the PUC, in September argued against subsidies. Jeff Ackermann, a former chair of the PUC as well as director of the state energy office, in October argued that data centers can have upsides. Meanwhile, the Economist, the New York Times and the Washington Post began writing frequently about data centers — including this story from last week: “Energy hungry AI firms bet on these moonshot technologies.”
Xcel Energy in October delivered the statistics that made this a compelling Colorado story. The electrical utility, responsible for more than half of electrical sales in Colorado, said it needed a staggering 12,500 to 14,000 megawatts of new generation to meet rising demand. To put that into perspective, Rush Creek, Xcel’s wind farm between Limon and Colorado Springs, has a capacity of 600 megawatts.
After average annual growth of 0.7% during the preceding five years, said Xcel, it projected 4% growth compounded annually from 2023 to 2031.
Data centers lie at the center of this projected growth, 62% for energy growth overall and 72% for peak demand, according to Xcel’s Jack Ihle. In an Oct. 15 filing with Colorado regulators, he also said the same base-case forecast saw electric vehicles producing 19% and building electrification 12% of its new demand.
Even without this new demand, Xcel has had trouble getting renewable energy across the finish line. These are projects approved through the electric resource plan from 2021. Supply chain issues have something to do with that.
How will Xcel be able to meet burgeoning demand? And does this imperil Colorado’s drive to meet its 2030 goal of 50% economy wide reduction in emissions? The state’s existing modeling already showed the state falling short, and that was without the data centers becoming a major part of the equation. Now comes speculation — and, at this point it is merely that, speculation — that Xcel may find it necessary to keep Comanche 3, its newest and largest coal-fired unit, operating beyond 2030.
That speculation is not completely out of the blue. That is indeed what has happened in Virginia.
Here, I have described Xcel Energy. But data centers could be part of the stories of Tri-State and its members as well as Platte River Power Authority, Black Hills Energy and perhaps others. Even Fort Morgan — a town of 12,000 northeast of Denver, which is supplied by electricity by the Municipal Energy Agency of Nebraska. A Wyoming company, Prometheus Energy, says it intends to create a data center there as well as in Pueblo in 2026, according to one report.
Chris Hansen, one of Colorado’s most important state legislators in the energy transition, told Big Pivots in November that one of his larger disappointments in leaving the Legislature to manage La Plata Electric was that he wouldn’t be able to advance legislation to address the data center issue and help Colorado avoid the problems of Virginia. Hansen has handed the work off to State Rep. Kyle Brown, a Democrat from Louisville. Brown has a background in health care, and he will never have the adroit voice of a Chris Hansen or a Steve Fenberg, but he has demonstrated in his two years that he is a capable, solid legislator.
Yesterday, Gov. Jared Polis was in my neighborhood, and I got in a few minutes to talk with him about passenger rail and data centers. I asked him explicitly whether the growth in demand from data centers would imperil Colorado’s goal of achieving 50% economy wide decarbonization.
No, he said. Done right, growth in data centers can be a win-win for consumers and the utilities.
“Data centers are a broad category of electricity users, but I would say in the right time, in the right place, data centers can play a very important role in improving the reliability and sustainability of the grid, just like if they’re in the wrong place at the wrong time, they can add transmission costs,” he replied. “It’s really about what, when and where, and how that factors into grid resiliency as we move towards clean energy.”
I persisted with a question about the need for legislation. He did not answer directly:
“If there’s a way to bring in more data centers working with some of the larger providers in areas that make sense, that help us reduce costs for Colorado consumers and improve grid resiliency, then we should explore those.”
I suspect Xcel would be happy with his phrasing. However, we are already seeing upward price pressures in renewables because of supply chain and other issues. If that upward migration coupled with rapid growth in demand produces sharply higher consumer costs, there could be strong pushback. That could delay Colorado’s progress toward its decarbonization goals. The debate in the PUC proceedings about Xcel’s just transition electric-resource plan in coming months should be lively. That applies, too, to the debates in the Colorado Legislature.
There’s lots of good journalism to be had here for Big Pivots going into 2025. It’s one of many good stories across Colorado deserving deeper dives.
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