Takeaways: FERC Rejects Amazon Nuclear-Data Center ISA

FERC denies request for expanded power sales to AWS' data center campus, forcing the data center industry to evaluate new approaches to meet demand from large load customers.

November 06, 2024 • Est. Reading Time: 5 minutes

Mobius Intel Brief:

The Federal Energy Regulatory Commission (FERC) rejected Talen Energy’s amended interconnection service agreement (ISA) that aimed to expand power sales from the Susquehanna nuclear plant to Amazon Web Services’ (AWS) co-located data center campus on Friday.

  • Key Intel: The outright rejection to the ISA presents a new challenge for direct-connect strategies for large co-located load pursued by data center operators like Amazon — ultimately adding headwinds for repurposed operable nuclear capacity and tailwinds for investments in new reliable/dispatchable capacity. Small modular reactors (SMRs) are an attractive long-term option for developers’ capacity investments if units simultaneously benefit retail consumers. However, comparatively short lead times for gas-fired units will likely attract data center developers pursuing less regulatory complexity, indicating bullish support for natural gas demand from strategies like co-locating primary power behind the meter1 .

A Closer Look:

Three information sources provide more context into the downstream effects of FERC’s 2-to-1 decision to deny Talen’s request to bump load capacity at AWS’ data center campus from 300 MW to 480 MW.

FERC’s Nov. 1st 4.5-hour technical conference on large loads co-located at generating facilities reflects substantial sentiment shifts in resource investment appetite and grid regulators’ priorities.

  • Word count analysis provides an example of these new priorities. ‘Reliability’ was referenced 74 times. ‘Cost’ was mentioned 89 times. ‘Transmission’ 94 times. Meanwhile, ‘sustainability’ was only used 3 times and ‘carbon’ twice.

FERC’s conference and its subsequent decision to deny Talen’s amended ISA suggests recent initiatives to co-locate and directly connect large loads to the US’ limited operable nuclear capacity will face high regulatory scrutiny — regulators are wary to force retail consumers to shoulder 1) grid reliability risks, 2) costs for new capacity, and 3) the penalties of recent reliable generation retirements in ISOs like PJM.

According to FERC commentary and Talen’s post-decision press release, the rejection will likely incentivize a path where data center developers invest in new dispatchable and reliable capacity.

The data center economy will require an all-of-the-above approach to satisfy the increased demand, including co-location such as Talen’s arrangement with AWS, hybrids that co-locate primary power behind the meter while using grid power for back-up, and front-of-the-meter connections to utility transmission.

Talen Energy

While data center operators are keen to leverage nuclear reliability and low-carbon attributes, strict regulations present an additional hurdle.

  • PPAs that bring retired capacity back online like Microsoft’s Three Mile Island agreement will likely face considerably less regulatory complexity than developers’ attempts to deploy emerging nuclear technologies like SMRs behind the meter1 .

Instead, co-locating primary power behind the meter will likely limit developers’ options to non-nuclear resources like natural gas-fired units or geothermal. Proven technology and abundant fuel are attributes that will likely skew interest in favor of natural gas-fired dispatchable generation.

1  "Behind the Meter" (BTM) refers to electricity generation or storage systems located on the customer's side of the utility meter, rather than on the utility's side.

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