Data center demand drives 66% surge in natural gas power plant costs

Tech giants such as Microsoft and Meta are increasingly turning to natural gas as they expand their data center operations. However, the costs associated with constructing these power plants have surged dramatically, climbing 66% over the past two years, as reported by BloombergNEF. The price to build a new combined cycle gas turbine (CCGT) facility has risen from under $1,500 per kilowatt in 2021 to $2,157 in the previous year. Despite low natural gas prices in the U.S., influenced by geopolitical factors like the war in Iran, the time required to complete new plants has also increased by 23%. Data centers are a significant contributor to the rising electricity demand, prompting not only tech firms but also utility companies to invest heavily in natural gas infrastructure. The Trump administration had previously encouraged data center operators to generate their own power, a strategy that has led to rising costs being passed on to consumers, fostering public discontent towards these facilities. Currently, data centers are among the fastest-growing electricity consumers. Projections indicate that their demand will triple, skyrocketing from 40 gigawatts today to 106 gigawatts by 2035. This increase is partly attributed to the growing scale of data centers, with only 10% of current facilities exceeding 50 megawatts. In the coming decade, the average size is expected to surpass 100 megawatts. Traditionally, tech companies have preferred data centers connected to the grid, supported by power purchase agreements for renewable energy sources like wind and solar. However, escalating electricity demands, coupled with public resistance towards conventional data centers, have led to a surge in new natural gas projects. The race to establish natural gas power plants has led to a shortage of gas turbines. By the end of this year, turbine prices are anticipated to be 195% higher than in 2019, with manufacturing limitations extending wait times into the early 2030s. In contrast, companies like Google are exploring alternative methods for enhancing grid capacity, focusing on renewable energy paired with long-duration storage solutions, such as Form Energy’s innovative iron-air batteries. Unlike the costs associated with gas turbines, solar technologies and batteries have become increasingly affordable, presenting a viable alternative to expensive natural gas power plants.