Batteries Could Power Data Centres Better Than Gas

A new report by researchers from Georgetown and Duke universities highlights how battery storage can provide a cleaner, more flexible and potentially cheaper solution to the rapidly growing electricity demands of data centres, while helping governments avoid costly investments in fossil fuel infrastructure.

The rapid expansion of artificial intelligence (AI) and data centres is driving a surge in electricity demand, prompting utilities and technology companies to plan substantial investments in new natural gas power generation. However, a new report suggests that battery energy storage systems could offer a more economical, flexible and climate-friendly alternative, potentially reducing the need for additional fossil fuel power plants.

The report, prepared by researchers from Georgetown and Duke universities in the United States, examines how battery storage could meet a significant share of the electricity requirements of data centres. It also outlines policy measures that state governments can introduce to encourage technology companies and utilities to prioritise energy storage over new gas-fired generation.

The findings come amid growing concerns about the environmental and financial consequences of expanding fossil fuel infrastructure to support the AI boom. While natural gas plants can provide continuous electricity, their construction involves substantial investment and long-term commitments that could become costly if projected data centre demand fails to materialise.

Rising electricity demand raises concerns over gas expansion

Data centres require enormous amounts of electricity to operate servers, cooling systems and networking infrastructure. The growing use of AI applications, cloud computing and digital services has further increased their energy requirements, making reliable and uninterrupted electricity supply a priority for technology companies.

Natural gas has increasingly become the preferred option for meeting this demand because gas-fired power plants can generate electricity continuously and provide dependable power independently of weather conditions.

According to the report, US utilities are planning more than 60 gigawatts (GW) of new gas-fired generation to serve anticipated data centre demand. In addition, approximately 90 GW of behind-the-meter gas generators have been proposed for installation directly at data centre facilities.

This expansion could significantly increase greenhouse gas emissions and lock electricity systems into decades of dependence on fossil fuel infrastructure.

There are also financial risks associated with building power plants specifically to serve data centres. If proposed projects are cancelled, delayed or closed earlier than expected, the investments made in dedicated gas infrastructure may not be recovered.

Such infrastructure is described as a stranded asset when it becomes uneconomical or unnecessary before the end of its expected operating life. In these circumstances, electricity consumers could ultimately bear some of the financial burden through higher utility costs.

The report warns that the uncertainty surrounding future AI demand makes this risk particularly important. If the anticipated expansion of computing infrastructure does not occur at the projected scale, utilities could be left with expensive power generation capacity that is no longer required.

Batteries offer flexibility and financial advantages

Battery energy storage systems could help address these challenges by providing electricity when demand rises and storing surplus power when it is available.

Unlike conventional gas-fired power plants, battery installations are modular and can be deployed in stages. This allows utilities and data centre developers to adjust investments according to changing electricity requirements rather than committing to large, fixed infrastructure projects.

If demand increases, additional battery capacity can be installed. If data centre projects are delayed or abandoned, planned storage investments can be reduced or redirected to other grid requirements.

This flexibility makes batteries a potential financial safeguard against the risk of overbuilding power infrastructure.

The report also highlights the potential cost advantages of batteries in situations where several hours of stored electricity can meet immediate energy requirements. Although battery systems cannot independently provide uninterrupted electricity throughout the day and night without sufficient storage capacity and additional generation support, they can meet a substantial portion of data centre demand.

Lithium-ion batteries, in particular, are already being deployed at increasing scales and are commercially available, unlike several emerging technologies that are still developing. These include advanced geothermal energy, next-generation nuclear power and innovative long-duration storage systems.

Battery installations can also reduce pressure on electricity networks by supplying power during periods of peak demand. This may help avoid or delay expensive investments in transmission and distribution infrastructure that would otherwise be required to accommodate rapidly expanding data centres.

Another important advantage is their ability to respond quickly to sudden changes in electricity consumption. Data centres running intensive computing workloads can experience substantial fluctuations in power demand. Battery systems can absorb these variations, helping stabilise the grid and reduce stress on electricity infrastructure.

Energy storage deployment gathers momentum

The growing interest in battery storage is reflected in projections for the US energy sector. A recent forecast by BloombergNEF estimates that cumulative energy storage deployment in the United States could exceed 11,000 gigawatt-hours by 2036, representing a 30 per cent increase over its forecast published just six months earlier.

The expanding electricity requirements of data centres are among the factors driving this upward revision.

Although technology companies and utilities continue to pursue gas generation, battery storage is increasingly becoming part of their energy planning. Its commercial availability, declining costs and adaptability make it an attractive option for meeting at least some of the additional electricity demand.

The report argues that greater policy support could accelerate this shift and ensure that battery storage becomes a preferred component of future data centre energy infrastructure.

State policies can accelerate the transition

The researchers identify several measures that state governments can adopt to encourage technology companies to invest in clean energy and storage rather than relying primarily on fossil fuel generation.

In states where regulators have direct authority over utility investments, one option is to introduce special electricity tariff structures that require large consumers to procure or pay for additional clean energy capacity.

These arrangements, commonly described as ‘bring your own new clean energy’ tariffs, can require data centre operators to support sufficient carbon-free electricity generation and energy storage to meet some or all of their electricity requirements.

Such policies can ensure that the growing energy demands of technology companies do not simply increase dependence on existing fossil fuel power plants or shift the costs of new infrastructure onto ordinary electricity consumers.

Some jurisdictions have already begun adopting this approach. Technology companies, including Google, have signed agreements under such tariff arrangements with regulators in Nevada and Minnesota.

States with restructured electricity markets face a different set of challenges because regulators have less direct control over independent power producers that develop generation and storage projects and sell electricity through wholesale markets.

However, the report identifies alternative policy options for these jurisdictions. These include introducing mandatory energy storage targets, strengthening state-level electricity planning and coordinating with regional grid operators to identify opportunities for battery deployment.

States such as Illinois, Maryland and New Jersey have already introduced energy storage mandates that could provide useful models for other jurisdictions.

Balancing the AI boom with climate objectives

The expansion of AI and digital infrastructure is expected to remain an important driver of electricity demand. Ensuring a reliable power supply without creating unnecessary fossil fuel dependence will therefore become an increasingly significant challenge for governments and energy planners.

The report emphasises that battery storage should not be viewed as a complete replacement for conventional electricity generation. Instead, it can serve as an important part of a diversified energy system, working alongside renewable energy and other reliable sources to meet changing demand.

The broader objective is to avoid building expensive gas infrastructure when more flexible alternatives can meet immediate requirements. By combining battery storage with appropriate electricity procurement policies and long-term energy planning, governments can reduce emissions, limit financial risks and strengthen grid reliability.

As data centres become central to the global digital economy, the choices made today about powering them could have lasting consequences for energy systems and climate goals. Prioritising battery storage could help ensure that the growth of artificial intelligence does not translate into another prolonged expansion of fossil fuel infrastructure.