Why Should Delaware Care?
Delawareans have already seen higher power bills in recent years. If the proposed data center near Delaware City were built, those bills would likely go up even more as a direct result of it, according to experts.
When news spread of a massive proposed data center near Delaware City, many Delawareans worried the project would raise their electric bills.
The likely answer, many experts say, is that it will. But there is currently no real way to tell by how much.
While data centers have been around since the 1950s, tech companies now need bigger, more energy-hungry data centers to power new artificial intelligence (AI) applications like ChatGPT, Google Gemini, Microsoft Copilot, and more.
A March paper from the Harvard University Electricity Law Initiative, an independent policy organization based at Harvard Law School, revealed different ways that utility companies “are forcing ratepayers to fund discounted rates for data centers.”
And a 2024 Virginia report about data center impacts on the public concluded that while data centers had not yet increased resident power bills, that was because the state had unused energy capacity, which is now running out.
Virginians could see a $168- to $444-yearly increase before inflation to their power bills as a direct result of data centers by 2040, according to the paper.
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Claire Bencks, communications manager for the Data Center Coalition advocacy group, said in an emailed statement that the industry is “committed to paying its full cost of service for the energy it uses.”
But co-author of Harvard’s paper Eliza Martin said a data center developer’s definition of the “full cost of service” could be very different from what a consumer might think.
“That’s the part that’s up for debate,” Martin said.
Prices already rising
At a recent town hall, representatives from Starwood Digital Ventures, the developer proposing to build the Delaware City data center, said it would buy power “from the open market” through Delmarva Power.
That means the power would come from the PJM electric grid, which has already seen increased electricity prices as the development of new power plants continues to fall behind the growing demand for power in the region.
In a 2023 report, PJM said this growing demand largely came from data centers.
Northern Virginia, which is also part of the PJM grid, is dubbed “Data Center Alley” because it has the largest concentration of data centers in the world. New data centers are also being constructed in Maryland, Pennsylvania and Ohio.
João Ferreira, a regional economist at the University of Virginia’s Center for Economic and Policy Studies, was contracted by the state for its report on the impact of data centers.
He said the question of whether Delawareans’ power bills would increase because of the proposed data center is, at its core, a simple case of supply and demand: whenever energy demand goes up substantially, prices of energy go up for everyone if there is not enough supply to meet that demand.
How much those bills could rise, though, is a “complex mathematical exercise” that he can’t do without more information, Ferreira said.
In an emailed comment, PJM Strategic & Stakeholder Communications Lead Dan Lockwood Sr. listed several ways PJM is working to bring more power onto the grid, including bringing some power plants out of retirement and speeding up production of new ones.
“These data centers will certainly be part of the conversation to help bring new supply to the grid, offset rising electricity costs and alleviate reliability concerns,” Lockwood wrote.
Other ways residents could foot the bill
Consumer bills could also rise because of the electrical infrastructure improvements that would be needed to supply the massive new electricity demand from the data center.
The cost of electric infrastructure improvements are spread among all consumers on a grid because, typically, infrastructure upgrades benefit everyone, Martin said.
In PJM’s case, half the cost of transmission upgrades is spread throughout all PJM regions, and the other half is paid for based on actual use of the facilities, Lockwood said.
But now that single companies are using such large amounts of energy, utility companies have been building new infrastructure only to serve these companies, according to the Virginia data center report.
Mark Scarano, the senior manager of economic development at Delmarva Power, said the costs of infrastructure improvements needed for one company are “directly borne by the company themselves.”
But it is often hard to prove that an infrastructure upgrade is needed solely for data centers, Martin said.
She said the process to decide how much to charge each customer class, such as residential or commercial, is “very subjective,” and the groups with better lawyers often get better rates.
Some data center companies even enter into what her paper dubbed “secret contracts” with utility companies. The terms of those contracts are considered confidential, but they could include lower electricity rates for the data center as an incentive to build them in that region.
Delaware power bills may also be hit harder than those from other states because the First State consumes almost 100 times more energy than it produces.
Cathy Kunkel is an energy consultant with the Institute for Energy Economics and Financial Health, a think tank that examines issues related to energy markets. She said the fact that Delaware is an energy importer doesn’t necessarily make energy more expensive in itself.
But the large increase in energy demand could lead to transmission congestion, in which existing infrastructure can’t support the amount of energy flowing through it. That could lead to higher prices, Kunkel said.
Could the data center give an economic boost?
Some argue the investment from new data centers could provide more of a tax base that could cause the economy to grow, mitigating any power bill increases.
David Tilley, associate professor of environmental science and technology at the University of Maryland, said while Virginians are starting to see their energy bills go up, they’re seeing other economic advantages from data centers, like low property taxes.
David Stevenson, director of the Center of Energy and Environment at the conservative think tank Caesar Rodney Institute, last week wrote an article about the potential negative effects of the proposed Delaware City data center.
Stevenson said in an interview that he thinks Delaware needs more investment and more jobs, but the roughly 250 jobs the data center would bring would not benefit the economy that much.
And if electricity rates go up, he added, Delewareans would spend less money on other things, which could have a negative indirect impact on the economy anyway.
“If they’re willing to pick up all the costs associated with it, it’s fine, go ahead and build it,” Stevenson said. “But if you’re looking for everybody else in the state to carry the weight for you, go somewhere else.”
There is also some doubt that the investments into the energy infrastructure would actually pay off.
Kunkel, the energy consultant, said there is a “real possibility” that utility companies could “over-build” infrastructure, or build more than is actually needed.
“If there’s fewer sales than the utility [company] expects because not as much data center demand materializes, then the existing customers get stuck with those extra costs,” Kunkel said.
While tech companies are making unprecedented investments into building data centers for their AI products, there are questions about how much companies can profit off of AI – partially because it is expensive to buy the massive amounts of energy needed to train the models.
The need for increasingly energy-hungry data centers was also called into question in January when the Chinese AI company DeepSeek released a chatbot that runs on much less energy than similar models.
Martin, the co-author on the Harvard paper, said that despite questions about data center energy usage, utility companies still have an incentive to build more infrastructure. They can get a return on equity for the money they spend on those upgrades, then pass those earnings onto shareholders.
The consumers of electricity, though, foot the bill for those infrastructure improvements, Martin said.
Potential solutions
Both the Virginia data center report and the Harvard paper recommended that state legislatures establish a separate customer class for data centers, which could lead to a higher electricity rate for them.
Matt Hartigan, executive director of the Delaware Public Service Commission, which oversees requests by power distributors to raise consumer rates, said there has been “some internal discussions” among staff about a separate rate for data center customers, but they have not spoken to the commission about it.
Hartigan said that it is important to protect residents and businesses from bearing extra costs brought on by new customers with large energy demands.
“The commission will do everything in its power to prevent that from happening,” Hartigan said.
Stevenson, from the Caesar Rodney Institute, said he thinks Starwood should generate its own power on the site to lessen the impact to consumers.
But at the town hall, Starwood CEO Anthony Balestrieri said the company does not currently plan to generate its own power because they are unsure if it would be allowed under state and federal regulations.
Stevenson and New Castle County Councilman John Cartier proposed that part of the data center plan move to the former DuPont Edgemoor site, which is currently slated for an expansion of the Port of Wilmington.
Cartier said it would be an ideal location because it is next to the Calpine Edgemoor power plant, which currently uses natural gas and oil to produce 327.6 gigawatt hours of energy per year.
The plant has untapped capacity to expand that could help meet the up to 1.2 gigawatt per hour demands of the data center, Cartier said.
But taking away existing energy supply from consumers could also risk raising prices, Stevenson warned.
Neither Cartier nor Stevenson has been in contact with Starwood about the idea. Starwood representatives did not respond to a request for comment.
Starwood submitted exploratory plans for their proposed Delaware City data center to New Castle County last week, officially starting the regulatory review of the project.
Hartigan said the Public Service Commission has not yet done any studies into how the data center could impact residential power rates.
