The Signal November 12, 2024

FERC Denial of Nuclear-Powered Data Center Begs for Strategic Sourcing Leadership

The Federal Energy Regulatory Commission’s decision to halt a pact between Amazon and a Pennsylvania nuclear plant has stalled Big Tech's dreams of co-located data centers. But sourcing leaders’ fine-tuned expertise could help make them a reality.

Kevin O'Marah Avatar
Kevin O'Marah
Sourcing & Procurement

Amazon’s plan to build a data center right next to a Pennsylvania nuclear power plant seems like an obvious winner for anyone worried about climate change and the surging demand for electricity driven by AI. The US Federal Energy Regulatory Commission’s (FERC) recent denial of the bid might seem unreasonable and short-sighted. 

Not so. This process was intelligent and high-integrity, but sorely lacking the kind of strategic sourcing expertise common in other complex, long-horizon supplier relationships seen in sectors like semiconductors, aerospace, and consumer products.  

AI, Data Center Energy Demand, and the Flywheel of Sustainability 

Zero100 analysis of supply chain digitization practices shows big advantages in growth, efficiency, predictability, and even Scope 3 progress among top quartile companies. These companies know how to build fusion teams blending operations and technology, how to platform their data, and how to drive change to take advantage of better decisions using AI. The best are showing that it is possible to decouple economic growth from GHG emissions.  

AI empowers us to be more efficient. Data centers make it possible.

Efficiency alone, however, isn’t enough. A transition to new energy sources is also necessary. Electric vehicles, for example may cut tailpipe emissions, but without renewable power generation, we’re just robbing Peter to pay Paul. The same is true for swapping out domestic natural gas and oil energy in favor of electric. The entire system needs an overhaul and while nuclear power is a key ingredient, so are battery storage systems, solar, wind, geothermal, and a network of backup generators. 

FERC clearly understands this, as do the operators and experts who testified at a technical conference on the question of co-locating large loads at generating facilities. This five-hour session hosted in Washington, DC, on November 1 broke down the implications of Amazon’s request, which is one of at least eight such cases in flight, including Microsoft’s push to reopen Three Mile Island

Leverage AI’s Thirst for Energy to Rebuild the Energy Grid 

Focusing on resource adequacy and fairness, the conference exposed systems complexities including how co-located data centers might shift network costs to residential customers on one hand, but could also add capacity and resilience. “It depends” was the oft-repeated opening to answers about whether a co-location deal involving restarting a decommissioned facility, building new generation capacity, or simply attaching to an existing plant is good or bad.  

Most interesting, however, was the revelation that existing cost allocation and rate designs are inadequate to intelligently engage hyperscale customers like Amazon, Microsoft, and Google. Electricity demand since 2000 has grown so slowly that simplistic pricing has been good enough to suit capital budgeting processes that are glacially slow compared to what is needed now to handle exploding data center demand. 

FERC isn’t obstructionist. They’re just tapping the brakes enough to get their facts straight so they can make constructive deals with deep-pocketed, power-hungry customers who are probably quite happy to pay for systems-level improvements benefiting everyone.  
 
Let’s get the flywheel started. 

Strategic Sourcing to the Rescue 

If you’re Amazon, maybe the quickest way to get there is to figure out what this strategic supplier needs to succeed. This is standard practice when semiconductor companies collaborate with fabrication equipment makers on tech roadmaps for new designs, and when CPG companies co-develop new pack types with packaging suppliers. It’s common sense whenever a critical supplier is being asked to invent something new.  

It's also a natural extension of companies’ efforts to reduce Scope 3 carbon emissions. Purchase power agreements pioneered by the likes of Walmart and Schneider Electric are already in use with energy companies as a means of accelerating the shift to renewables. In fact, both Amazon and Walmart are among the top ten companies to explicitly include green energy expertise in their supply chain hiring plans.

Sourcing professionals who can blend expertise in sustainable energy strategies, systems thinking, and collaborative problem-solving with suppliers are the missing ingredient. They are the unlock that can tie Big Tech’s voracious appetite for energy to our collective need for an answer to climate change. 

Thank FERC for stopping long enough to ask the right questions.