Google wants to build a 780-megawatt AI data center in Pine Island, Minnesota, a town of about 4,000 an hour southeast of Minneapolis, and is betting the project can help fund a cleaner, more reliable power grid. Under a proposed deal with Xcel Energy, Google would pay for 1,400 megawatts of wind, 200 megawatts of solar and 300 megawatts of battery storage - more capacity than the data center itself is expected to use.

Xcel says the new power will serve all local customers, not just Google, and help advance the grid's carbon-free supply. Google says minimum demand charges and exit fees keep it on the hook: it would pay for at least 75% of its contracted capacity even if it uses less, and owe up to eight years of those charges if it terminates early. The agreement still needs approval from the Minnesota Public Utilities Commission.

The pitch comes as data centers face local pushback. A March Gallup survey found 71% of Americans opposed a data center in their area, with energy use a top concern; Pew Research Center found half of Americans surveyed in July and August expected data centers to be mostly bad for the environment and household energy costs.

Not everyone is convinced the approach is the right one. Jigar Shah, a partner at consulting firm Multiplier, argued operators could build smaller facilities where the grid already has unused capacity, lowering everyone's rates instead of adding new generation and transmission. He said 25-megawatt data centers are possible but companies find it easier to contract one gigawatt-scale project.

David Pomerantz of the Energy and Policy Institute, a utility watchdog, said utilities earn returns of around 10% on new infrastructure funded partly by Wall Street investors, giving them little incentive to fit data centers into the existing grid. He said data centers could lower bills by providing capital more cheaply than utilities, but that this creates a problem for utilities and the fight is already emerging.

Google's Amanda Peterson Corio said the timing suits a moment when capital is needed to fix aging U.S. infrastructure, while Xcel's Amanda Rome said the protections ensure someone pays for the buildout. Shah called the Minnesota project a good example of a data center acting as a catalyst for newer, greener technology that helps ratepayers.

Source: CNBC