MSU expert: What you should know about data centers

Erik Nordman, an associate professor in the Department of Agricultural, Food and Resource Economics and director of the Institute of Public Utilities at Michigan State University, offers expert insights into the burgeoning data center industry. With facilities ranging from small buildings to 'hyperscale' operations spanning hundreds of acres, Nordman explains how these centers, particularly those supporting AI, generate significant waste heat requiring extensive cooling systems. While some use water-efficient closed-loop systems, others employ once-through methods that consume more water, and closed-loop systems, though water-saving, demand more electricity. Data centers must comply with local zoning regulations and undergo a community's planning and zoning process, allowing for public input. Utility regulators, such as the Michigan Public Service Commission, typically approve agreements between data centers and electric utilities, often involving special rates to cover service costs. Data centers source electricity from the grid, but hyperscale facilities may necessitate new generation capacity, leading to utilities building natural gas, wind, or solar plants. Due to construction timelines, some data centers generate on-site power, often using natural gas generators now in short supply, or consider repowering decommissioned nuclear plants. Nordman notes that large data centers do not always increase electricity rates, as fixed costs can be spread over greater consumption. However, if utilities build new infrastructure specifically for data centers, these costs are borne by the data centers, potentially through special rate categories and long-term contracts. Economically, host communities benefit from property taxes that fund local services. Michigan offers tax incentives, requiring a $250 million investment, 30 workers, and 90% clean electricity within six years. Environmentally, the primary concern is pollution from electricity use, especially if generated by fossil fuels, which could reverse declining U.S. greenhouse gas emissions. Michigan's 2040 clean energy law and tax incentive requirements will necessitate significant renewable energy development to power these centers, alongside considerations for e-waste and noise pollution.