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A conversation with Roslyn Layton, PhD, executive vice president at Strand Consult and a widely recognized international expert in technology policy and digital economics.

Power Constraint: It’s all about the electric

U.S. energy policy is bottom-up, which means it’s decentralized, shifting, but adaptable. It encourages innovation. “When something like weather shocks take place, the prices go up. That’s a contrast to somewhere like Germany, where the forced shutdown of coal and nuclear plants led to their reliance on Russian natural gas,” said Layton. She notes the field of environmental economics is going through a huge transformation. “It started in the ‘70s when we had oil shocks that lined people up at gas stations and stoked fears we’d run out of fuel. But people have a way of getting creative when resource depletion becomes more real. Today, if shareholders care, if customers care, if employees care, the economics follow.”

It seems that people, regardless of background or political affiliation, are concerned about the speed at which data centers are being built, and the impact of the power usage on prices, communities, and the environment. “The discipline is becoming much smarter and while oil and gas are expanding, the long tail of renewables is growing. That means hydro, wind, solar, nuclear, biomass and bioenergy, with entrepreneurs popping up everywhere, and despite some of the highly publicized rhetoric and policy changes against renewables, other U.S. policy changes, like the SPEED ACT, could actually make it easier for renewable entrepreneurs and innovators to drive change in the U.S.  Many U.S. and foreign renewable companies are investing more in the U.S. than ever. For example, there is the Danish Vestas windmill maker, Germany’s Siemans, and Norway’s Equinor,” pointed out Layton.

She contends that the total amount of energy the U.S. gets from green sources is increasing. “When the time comes that plentiful oil isn’t so plentiful, there will be a laser focus on renewables; it will become ‘the thing,’ but for now, it is growing at a steady pace.”

Storage: the Achilles heel of renewables

To be on equal footing with oil and gas, renewables need the killer app of “mobility.” Oil and gas are transportable and storable after they are refined.  “In Europe, renewables are a competitive field, but in the U.S. it needs subsidies because companies don’t have the storage they need,” Layton explained. “They have to deliver the energy as soon as it’s produced, but I wonder if eventually, the hyperscalers’ engineers will help solve that storage problem, because storage is going to be the game changer for renewables.” She said that at that point, solar and wind wouldn’t have to be promoted for environmental properties, but rather for efficiencies and economics. “Renewable will have all the things that oil and gas had in terms of portability, but also the bonuses of being clean, efficient, cost effective, , and free of geopolitical challenges. That would be the ultimate. The holy grail.”

Of course, no only do the sources of energy have to change, but also the grid and distribution, which will have to accommodate the enormous loads of electricity the biggest users will need for data centers. According to recent research, there could be as much as a 165% increase in data center power demand by 2030.

If shareholders, customers and employees care, economics follow

Hyperscalers are going to continue with green energy goals, according to Layton. “for example, Google wants to be a green steward,” said Layton, referring to its moonshot goal of runing on 24/7 carbon-free energy on every grid where it operates by 2030. 

To that end, Google has signed more than 170 purchasing power agreements (PPAs) worldwide for more than 22 gigawatts (GW) of clean energy from hydro, solar, and wind.  This month, Google signed PPAs with Total Energies, and the month before, it signed with Clearway Energy. Last year, Google signed the world’s largest hyrdropower deal, at 3 GW with Brookfield Asset Management. The company has also signed deals across Europe for wind, solar and hydro.

Amazon also wants to maintain its positioned as “the world’s largest corporate purchaser of renewable energy,” this month signing a PPA with RWE from the Nordseecluster B offshore wind farm in the German North Sea. Amazon is also exploring small modular reactors (SMRs) through an agreement with Energy Northwest to develop four reactors (~320 MW) in Washington state.

In terms of SMRs, Microsoft has been the pioneer among the hyperscalers, with its Three-Mile Island restart through Constellation.

 Meta is looking at next-gen geothermal and with Sage and solar with Zelestra.

Any hyperscalers that have committed to carbon-neutral/100% renewable goals and, due to their enormous electricity demand, require a diversified portfolio of energy sources to ensure reliability while meeting targets.

The problem of ‘Social Cost’: consumer pushback could trigger DC redesign

Today, people are pushing back against data centers, because of their design, their water usage, their currently carbon-heavy footprint, their impact on electricity costs to consumers. “If we look at just the aesthetics, for example, data centers look like industrial ‘big boxes,’ so the question becomes one of whether data centers can evolve their design to better integrate with the communities and the landscapes in which they exist?”  She points to the growing field of “sustainability design” and the fact data centers offer a potentially “enormous palette” for creative and harmonious design between communities and data centers. “In rural communities, for example, segregated land uses and heavily automobile-centric infrastructure lead to obesity and elevated risks of diabetes, heart disease, stroke, and cancer. Data center designers could focus on making communities around their expansive data center campuses more walkable and bikeable.”

The Problem of ‘externality’

Ronald Coase’s “The Problem of Social Cost” is the most-cited law review article in history, influencing how we price products, how we recover costs, and even the pay-your-own-way movement in the data center world.  The Coase Theorem talks of “externality,” which is a side effect or consequence of an economic activity that affects the third party who is not directly involved in the transaction.

Coase proposed that where property rights are clear (e.g., the right to clean air or the right to pollute), the affected parties can negotiate a solution that maximizes overall welfare. “The principle is still foundational today, in that private parties can work to efficiently solve externality problems, without government intervention, when construct moves from ‘who’s to blame’ to ‘how can we negotiate to achieve efficient outcomes’” explains Layton.

“In the case of data centers, how to price extranality is being debated. If third parties not involved in the transaction feel they are injured or suffer, then the belief is that the parties responsible for that should somehow pay for it,” said Layton.

Today, polluters sometimes pay through carbon taxes and cap-and-trade systems rather than pure private bargaining. “The thinking is increasingly becoming one of “how do I make product development more green and sustainable so that it’s more socially valuable and doesn’t hurt my community.

That’s especially true now that social media and feedback loops rapidly convey how communities feel about something. This is particularly important in election years, like the one coming up,” said Layton. Indeed, data centers and electricity did affect the outcomes of recent elections in Virginia and New Jersey, where John McAuliffe, Abigail Spanberger, Mikie Sherrill won on the these and related issues.

“The silver lining is that these debates have opened a serious discussion about cost allocation — specifically, whether the largest users of infrastructure should bear a proportionate share of the upgrades required to serve them, rather than shifting those costs onto ordinary consumers,” said Layton. “The dynamic is strikingly similar to what we see in broadband markets, where a small number of hyperscalers — AWS, Microsoft, Alphabet, and Meta — account for a dominant share of downstream traffic. In telecom networks, a handful of firms generate a disproportionate volume of data flows over broadband infrastructure. We are now seeing a comparable pattern in energy: large-scale data center operators are major drivers of incremental grid demand, prompting arguments that they should either invest directly in dedicated infrastructure or pay fully for their use of the public grid. The policy frameworks emerging around AI infrastructure may ultimately inform similar debates in telecommunications.”

She noted that the price signal will actually force cost-causers to do more things in a smarter way. “Paying your own way is not a perfect solution, but it moves the needle in the right direction,” she added.

‘Constructive controversy’ moves society forward

Constructive controversy, from a policy perspective, thrives with complexity because it gets all issues and key stakeholders together; it motivates change and innovation. “All major change, whether women’s suffrage, environmental movement, civil rights — they all came from the complexity of the inequalities and injustices. It’s a trigger to better policy. A common purpose will trigger collective action, where even far-flung groups will find a way to work together to achieve a shared goal or to produce a public good. It’s what drives social, political, and economic change.”