Data centers are inevitable, but why should Indiana pay for their energy demand?

Indianapolis Star

2 days ago

Indiana has given $168 million in subsidies for data centers, which are projected to more than double the state's electricity demand very quickly while only creating a few dozen jobs. As a result, despite its already tight fiscal budget, the state has started planning to massively expand its energy grid, even looking decades into the future to invest in an emerging small modular nuclear reactor industry.
It is very problematic that large industries get these massive tax breaks while electricity costs soar for the average consumer in Indiana.
Artificial intelligence, after all, is a vital national security asset, the federal government is responsible for regulating interstate commerce and we are competing with geopolitical enemies like China in an arms race to develop it.
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If the federal government wants to win that race, it needs to step in and give regular consumers a way to escape energy market volatility or spread the cost of data centers' electricity demand across the nation.
The 'Big, Beautiful Bill' phases out energy tax credits, making shielding consumers from energy market volatility much more difficult. This tax credit returned 30% of the cost of a consumer's investment in energy efficiency, including through a solar array for their homes.
Such an array could shield consumers from rate increases while their utility companies invest in expanding grid capacity for data centers.
The energy tax credits helped more consumers than they should have, to be sure, but could be brought back at a much lower cost if they were limited only to homeowners, rather than larger businesses, as homeowners would likely have a more difficult time obtaining the credit to invest in solar energy without them.
In my case, the federal tax credit enabled me to obtain a solar energy loan that costs less per month than my electricity bill otherwise would have been.
Another solution would involve a major federal investment in energy infrastructure, akin to the National Interstate and Defense Highways Act of 1956 that built up the interstate as we know it today.
The main difficulty preventing the construction of a national interstate highway system was the apportionment of funding between the federal government and the states. The frustration of voters in certain states and localities bearing more of the cost of rapid increases in energy demand due to data center development is the major difficulty preventing the construction of nationwide artificial intelligence infrastructure today.
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President Dwight D. Eisenhower, recognizing that an interstate highway infrastructure was a national security issue, nationalized the cost so it would be spread out among all the beneficiaries of the system.
The federal government could step in and do the same today to incentivize independent energy producers to fulfill data centers' energy demands rather than investor-owned utilities. This would shield regular consumers from the rapid spike in electricity costs.
First, Indiana would have to deregulate their energy supply. Utility monopolies have had complete control over energy distribution in the state in their government-granted service territories since 1983.
'Utilities were fighting over customers and there was no real competition. There weren't independent energy producers or transmission owners… [but] what has happened in the last 20 years is we have had major reforms that have created a competitive wholesale market,' said Kristina Wheeler, former vice president and staff counsel for Indiana Municipal Power Agency and general counsel for the Indiana Utility Regulatory Commission. 'Anyone approved and qualified… [to] build generation or transmission can do so [but] they can't sell directly to any business or home, they have to go through the utilities that existed in 1983.'
As such, utilities are able to keep a chokehold on their service territories.
Takanock, Inc., for example, aims to develop data centers and provide 'reliable and resilient power solutions for those facilities.' They tried to purchase energy from producers independently from investor-owned utilities, to avoid passing on costs to consumers earlier this year. NIPSCO, however, denied their request, despite allowing many other large-load customers to do so.
'Takanock understands that cost-shifting to 9 other utility customers is a non-starter, and is willing to bear the reasonable costs to extend service to its future data center developments,' Kenneth Davies, founder and CEO of Takanock Inc., wrote in a petition to the Indiana Utility Regulatory Commission. 'We also believe there are reasonable regulatory methods to protect consumers and balance the interests of the significant economic development these projects will bring to Indiana.'
Georgia recently resolved this issue by forcing utility companies to allow large-load customers like data centers to buy energy from independent producers.
'Everybody should have an opportunity to serve and take on the associated risk, and my concern is what's been happening in Indiana is we're just being very protective of those legacy providers,' Wheeler added.
Reliable Energy, Inc. is working toward leveling the playing field in Indiana for independent energy producers, and recently won a settlement requiring Duke Energy to study if their coal plants could be sold to a third party instead of being retired.
If our energy supply were deregulated, and the federal government were able to invest in independent energy production facilities, they would likely focus on natural gas-fired power plants, since they are one of the cheapest to build.
Just 10 new data centers proposed in the state will likely require 9,700 megawatts of energy. Building natural gas-fired power plants to fulfill this demand would likely cost around $7,954,000,000, or $820 per kilowatt of energy based on national average construction costs from 2022.
However, natural gas plant construction by Indiana's legacy utilities routinely runs more than double that amount per kilowatt, likely due to the cost of aging infrastructure. Duke's Cayuga power plant and NIPSCO's R.M. Schahfer gas peaker plant are two such examples.
For comparison, data centers built across the country in 2024 only added around 7,000 megawatts of demand to the energy grid.
If nationwide trends continue, expanding the grid would only require a $5,740,000,000 yearly investment from the federal government.
The federal government is one of the few entities capable of making such large investments, but could easily recoup the cost by requiring these energy producers to return a percentage of plant profits until the capital costs are paid off.
The federal government already spends around $20 billion to subsidize the fossil fuel industry simply to lower energy costs, and does not get most of this money back. The Chips and Science Act involved a $52 billion investment in semiconductor manufacturing, so comparatively, it would be a small investment to prepare the energy grid to meet the demand of data centers.
It has taken mass blackouts and electricity rationing for China to treat energy production like the national security issue it is. Hopefully, Indiana and the U.S. will take action before then, otherwise the utility monopolies' stranglehold on consumers will continue, and energy will become increasingly unaffordable.