The US Regulatory Landscape at the Intersection of Nuclear Energy and Data Centers

The growth in data centers is so significant and their energy use so large, this sector is shifting the US energy landscape. US electricity demand, fueled by the need to power data centers, including to support artificial intelligence (AI), is growing at a rate unseen in decades, demanding both intermediate and long-term solutions. Pairing nuclear energy with data centers could solve many issues, but it raises novel questions.

This article explores how data centers’ energy consumption is changing the US energy landscape—by looking at one type of energy form—nuclear energy—and big tech’s big bet on nuclear, as well as examining the practical considerations behind the recent wave of nuclear energy and data center announcements, including the regulatory issues that will need to be navigated.

DATA CENTERS DEMAND MASSIVE ELECTRICITY GROWTH

Energy demand in the US is projected to rise massively over the next decade, in large part due to an explosion in data centers to support AI technology. In the next five years alone, US electricity demand is forecasted to increase by as much as 16%—an incredible jump considering power consumption has increased less than 1% annually for the past twenty years.[ii] That 16% demand increase represents about 128 GW of electricity, or enough to power 128 million homes.

This demand is not spread out evenly, either—just two markets—Texas and the PJM Interconnection (PJM) market, which covers the mid-Atlantic and parts of the Midwest region—are projected to see a whopping 73 GW of that 128 GW demand growth.[iii] Current electricity demand projections are already double what they were last year, and the numbers continue to rise.

Driving this massive demand are data centers, industrial onshoring and electrification, with the anticipated needs from data centers causing the lion’s share of the increase. Generative AI requires major data processing capabilities and, as a result, consumes huge amounts of electricity.[iv] Large data centers can consume about the same amount of electricity as a medium-sized city.[v] According to the US Department of Energy, data centers used about 4% of US electricity in 2023, but that consumption could rise to 9% of total electricity demand by 2028.[vi] Adding in projected increases from new domestic manufacturing, the rise in electric vehicles, increased system burdens from extreme weather, and broader electrification, the US grid could be under incredible strain in the next few years.

This skyrocketing demand is putting pressure on utility companies to meet the nation’s electricity needs, which will become increasingly more difficult to do as more data centers come online.[vii] Fears of increased household and commercial electricity rates and reduced grid reliability are causing some to grow concerned that the average American electricity customer may end up shouldering the burden for Big Tech’s growth.[viii] A recent paper from the Harvard Electricity Law Initiative suggests that electricity customers, or ratepayers, are already paying for data center infrastructure.[ix] With multiple states turning their attention to this issue, several are looking at proposed legislation to ensure costs for data center’s energy use are not borne by taxpayers.[x]

Given these market factors, tech companies and data center developers are increasingly looking for their own dedicated sources of reliable energy, whether using existing infrastructure or new energy projects—with nuclear energy seeing a surge in interest from data centers.[xi]

NUCLEAR ENERGY AND TECH: A MATCH MADE IN HEAVEN?

One example of a possible solution is the emerging relationship between Big Tech and nuclear energy. Data centers need an immense amount of reliable power, with many companies also wanting their power to be carbon-free. Nuclear power has the highest reliability rating among all power sources, can operate 24/7, and produces zero carbon emissions.[xii]

As an added bonus, data center developers are willing to pay for the positive externalities of nuclear—such as their reliability and clean power—whereas the complex rules of the wholesale electric markets in the US do not generally recognize these benefits. The US Department of Energy recently re-issued a $900 million funding opportunity to de-risk the deployment of small modular reactors (SMRs)—which can be sited more flexibly than large reactors—for energy-intensive operations like data centers.[xiii]

The private sector is arguably ahead of the curve on this issue, though. In the past year alone, tech companies have announced the following collaborations with the nuclear industry:

• Microsoft signed a twenty-year power purchase agreement (PPA) with utility company Constellation Energy to purchase energy from a restarted Three Mile Island Unit 1, which operated from 1974 to 2019. Under the PPA, Microsoft will purchase energy from the restarted Unit 1 to supply power for nearby data centers.[xiv] The power level from the restart would be enough to power approximately 800,000 homes.
• Amazon and nuclear reactor designer X-Energy announced a collaboration to bring online more than 5 GW of new nuclear power projects—or 64 of X-Energy’s Xe-100 small modular reactors (SMR)—in the US by 2039. This announcement represents the largest commercial deployment target of SMRs to date. The deployment will begin with an initial four-unit, 320 MW project with utility Energy Northwest in central Washington, with the option to increase up to 960 MW.[xv] Amazon and Virginia-based utility company Dominion Energy entered into a Memorandum of Understanding to explore deploying SMRs in the state for Amazon’s data centers, likely at the existing North Anna Power Station.[xvi] Virginia is projected to feel the electricity crunch acutely—the state is a global hub for data centers, with at least 70% of the world’s internet traffic running through Northern Virginia.[xvii]
• Google and reactor company Kairos Power signed a Master Plan Development Agreement to deploy 500 MW of advanced nuclear power by 2035, with the first deployment by 2030. Under the agreement, Kairos Power will develop, construct, and operate a series of SMRs and sell energy, ancillary services, and environmental attributes to Google under PPAs. Kairos’ plants will be sited to supply 24/7 clean electricity to Google data centers.[xviii] 
• Meta is actively seeking nuclear power developers to help it achieve its AI innovation and sustainability objectives by adding one to four gigawatts of new nuclear generation capacity in the US, starting in the early 2030s.[xix] A Request for Proposal (RFP) was announced in December 2024, and the RFP process remains ongoing.

In addition to Big Tech deals, data center investors have also struck deals to integrate nuclear power into their data center developments. In January 2025, Sabey Data Centers entered into a memorandum of understanding with Bill Gates’ TerraPower to power its data center developments with advanced nuclear Natrium plants.[xx] Switch, a developer of cloud, AI and enterprise data centers, has contracted with Sam Altman’s Oklo Inc. for a nuclear-powered data center collaboration extending through 2044.[xxi]

Pairing nuclear energy with data centers raises several novel practical and regulatory challenges. While “behind-the-meter” generators serving large industrial facilities (i.e., configurations where an industrial user like a data center is directly connected to the generator, bypassing the grid) are not a new concept, the scale and speed of the anticipated expansion are unprecedented. Also unprecedented is the idea of nuclear generation serving as a dedicated resource for a limited number of customers.

These issues give rise to legal and policy considerations that will require careful navigation by stakeholders, including federal and state government authorities. For example, existing, traditional nuclear facilities power the local grid. Removing that power from the grid to dedicate to a data center raises various legal and policy issues that need to be navigated, including how such power can be dedicated for the benefit of a single customer, and, if so, who should be responsible for the cost of replacing it. It is not simply a matter of substituting another source of megawatts—nuclear facilities are highly reliable, and their surrounding interconnection facilities often serve as hubs for the larger grid.

As another example, new nuclear facilities also raise novel issues. For example, even though a data center may be located at the same site as a generator and even interconnected exclusively to that generator, that data center will still benefit from such “grid services” as backup power when the generator is offline. These grid services are usually paid for primarily through “wires” charges on system users, charges that would not normally be assessed on a customer located “behind the meter” of a co-located generator.

THE FERC MAZE: REGULATORY HURDLES AND OPPORTUNITIES

Controversy regarding the use of nuclear facilities to power data centers exploded in March 2024 in the PJM region, which includes the global data center hub of Northern Virginia. Talen Energy had sold a data center campus near the Susquehanna Nuclear Power Plant in Pennsylvania to Amazon Web Services[xxii] and intended to sell power to Amazon from its ownership share of the Susquehanna plant. This agreement would have effectively redirected power from the regional grid to Amazon.

In response, many vociferous protests were filed with the Federal Energy Regulatory Commission (FERC), which oversees the transmission system and wholesale electric markets. Arguments against the interconnection agreement focused on the impact that dedicating a large existing generator to a single customer could have on other customers and the extent to which other customers might directly or indirectly end up burdened with the resulting costs.

Upon review, FERC rejected the agreement between Talen and Amazon.[xxiii] Although FERC’s rejection focused on technical reasons, the agency was clear that its concerns were significantly broader. Soon thereafter, FERC opened a new docket to investigate and resolve[xxiv] the problem of providing power to large loads in the PJM region, an overarching concern that is not confined to nuclear facilities or to data centers. Although this proceeding concerns the PJM region in particular, the outcome is likely to provide a template for how similar issues are treated elsewhere in the US FERC’s concerns are focused on resource adequacy, reliability, and rates.

For example, allowing data centers to enter agreements with existing generators runs the risk of making that power unavailable to existing customers, which raises the question of how to ensure “resource adequacy,” or the presence of sufficient resources to meet demand even under extreme conditions. Insufficient resource adequacy threatens the reliability of service, which can lead to an increase in blackouts for end users, including residential customers.

Blackouts have an economic cost, and tragically, all too often a human cost as well. Mitigating resource adequacy and reliability challenges, by, for example, building transmission to bring in power from elsewhere, is expensive and time consuming, which, if the costs are not carefully assigned to beneficiaries, could result in an overall increase in electricity rates. Even the construction of new generation together with data centers raises potential issues of cost allocation, responsibility for upgrading the grid, and whether co-located generation and load should be allowed to “skip the line” and interconnect to the grid ahead of generation intended to serve the entire grid.

FERC has emphasized that data centers are customers too, and that FERC’s mandate to ensure reliable power at “just and reasonable” rates on a non-discriminatory basis applies. FERC must figure out how to serve both rapidly increasing demand and existing customers while fairly allocating the cost, and it must do so quickly. Failure to accommodate increased demand risks stymying economic progress, while doing so carelessly risks blackouts and/or untenable price increases.

Complicating FERC’s role is that FERC has limited jurisdiction. FERC only regulates the sale of electricity at wholesale (i.e., sales for resale, not sales to “end-users,” such as data centers). Sales to end-users are “retail sales” subject to state jurisdiction. Likewise, FERC has very little authority over the siting of generation and transmission, which are also the responsibility of the states. Therefore, FERC cannot devise a comprehensive solution alone. For their part, numerous state regulatory commissions have already expressed their own concerns about the rapid increase in demand and how it can be met without harming electric ratepayers.

LOOKING AHEAD

Pairing data centers with nuclear energy could solve a plethora of concerns about the nation’s increasing energy needs—but it creates novel issues that will need to be navigated.

As the Talen-Amazon agreement demonstrates, existing nuclear plants are tightly integrated into the grid, which raises many economic and engineering concerns if they are reconfigured to provide service to an onsite data center. But if FERC creates expanded opportunities for constructing data centers together with new generation, this could create a wealth of opportunities for small modular reactors, which are not only zero-emissions but also provide highly reliable power.

US electricity demand is growing—and fast—meaning that Big Tech, data center investors, utilities, and FERC will need to address it sooner rather than later. Data center investors need to take an active role and be flexible in helping to formulate solutions as state and federal policy makers attempt to meet the competing demands of energy users.

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