Can data centers lower Alaska's high energy costs?

By Peter Asmus, Gwen Holdmann  and Erlingur Gudleifsson  

March 25, 2025

Data Centers are transforming the energy industry. Today, there are more than 8,000 data centers worldwide that consume roughly 1 to 2% of the global energy use, a statistic that is lower than some previous estimates due to refinement of models. Over half of these data centers have been deployed in the U.S., with a higher energy use estimate of 2 to 4%. A report released by the U.S. Department of Energy in late 2024 reported that data center load growth has tripled over the past decade and is projected to double or triple again by 2028 (see chart below.) The report, prepared by Lawrence Berkeley National Laboratory, states that this surge in demand can be met with clean energy technologies, but a number of concerns have been raised by utilities in terms of availability of supply and potential impacts on ratepayers. 

From a geographic perspective, Alaska could evolve into a major player for hyper-scale data centers, given its strategic location near large Asia Pacific markets. But as noted in a blog posted by ACEP last year, the missing ingredient to transforming that idea into reality is the need for fiber optic cable connections. 

Nevertheless, as the data center industry seeks new domestic sites with available land and energy infrastructure, the search has expanded beyond major urban centers in the continental U.S. Major hyper-scale players such as Amazon, Meta and Microsoft are being courted by Governor Dunleavy’s administration to come to Alaska. While the ability of Alaska-based data centers to serve the nearby booming markets in the Asia Pacific region is currently limited,  Alaska has had a fiber connection to the lower 48 since 2019. Could Seattle and perhaps California’s Silicon Valley tap data centers in Alaska for certain kinds of data services where latency is not a major concern? That is the question of the moment.

At present, three data centers are operating in Alaska:

• The North Digital data center fueled by natural gas in Prudhoe Bay
• A colocation facility in Anchorage operated by the telco company GCI
• A small 150-kW edge data center developed by Greensparc running on 100% excess run-of-the-river hydroelectricity installed within the Cordova microgrid

 

The Cordova Greensparc edge data center design is applicable for many of Alaska’s rural and remote microgrids - as well as similar applications in Africa, the Asia Pacific and Latin America. Yet there may be an opportunity for Alaska on the other end of the data center spectrum, too. Maybe Alaska could also become a magnet for hyperscale data centers given large tracts of available land and the free cooling the state’s immense water and ice can provide. Why not? Look at Iceland. What lessons can be learned from the Iceland experience, where large load customers such as aluminum smelters – and more recently data centers – have served as anchor commercial and industrial loads that help lower energy costs for all electricity consumers? 

 

What Alaska needs to do to attract data center loads 

There are some obstacles to landing new large electricity loads that could help reduce the cost of electricity in Alaska on the Railbelt grid that serves approximately 75% of Alaska’s electricity demand by increasing economies of scale of new carbon free or lower carbon resources, including natural gas. Among the two challenges that Alaska would need to overcome are the following:

• Cost of electricity. Alaska’s cost of electricity is among the highest in the U.S., though much lower than some other parts of the world. Hyper-scale data center asset owners typically seek the lowest possible cost for electricity and, most recently, the cleanest sources due to political pressure from environmentalists and the investment community to reduce carbon. Other cold climate countries such as Iceland or Greenland have an advantage in this regard since they currently generate the majority of their electricity from renewables already. Alaska, however, has abundant renewables that span the full spectrum of available clean energy technologies.
• Redundancy for resilience. Many hyper-scale data centers are actually served by two different utilities as a way of ensuring constant 24/7 electricity service. Historically, they’ve also featured armies of diesel generators as back-up sources. A state-of-the-art hyper-scale data center, such as one being developed in Perth, Australia, features dual feeds from a single utility but also designed to feature a microgrid without diesel generators. The only part of Alaska that could replicate this model would be on the Railbelt grid. New data center loads integrated into the Railbelt could spur efforts to decarbonize this system, which is the primary source of carbon emissions from electricity generation in Alaska, as was documented in recent ACEP reports. 

A key advantage for Alaska could be the free cooling Arctic sites can provide. Data center owners are extremely cost conscious. That's why they are so focused on finding sites with low cost, clean power, such as the Google site in Nevada which will run on 100% baseload geothermal energy. Alaska does offer the advantage over the aforementioned site in western Australia in the sense that abundant cooling resources are available. Cooling costs typically represent 5% of ongoing operations and maintenance costs. That may sound small, but for cost conscious data center operators, every little bit of savings counts. Iceland clearly shares this advantage with Alaska. 

A role for North Slope natural gas?

Alaska could soon have another data center come on-line in 2024, this one sharing features with Iceland in one way - it would serve bitcoin mining operations - but deviating in other ways, principally in its power supply and size. The application filed in November by Hilcorp and TA Infrastructure would allow the data center to operate in a shipping container over a four-year period. Interestingly enough, it would tap existing natural gas generators in the North Slope for its power supply, which researchers at the University of Alaska Fairbanks warn would emit substantial amounts of carbon emissions given the intense round-the-clock bitcoin mining process. 

Most traditional data centers in the past relied upon diesel generators and lead-acid batteries integrated into UPS systems to provide resiliency. A move toward cleaner assets and microgrids for data centers started about 8 years ago. More recent pressure from the investment community looking toward more nimble decarbonization strategies has the data center industry looking for creative on-site solutions rather than rely strictly upon carbon credits from off-site wind and solar farms which was the most common approach to decarbonization. 

In Alaska, some see the push for data centers strengthening the business case for building a natural gas pipeline connecting urban centers in Anchorage and Fairbanks to the oil fields on the North Slope, a multi-billion project that has yet to attract sufficient commercial momentum. The Railbelt grid’s current natural gas supply from Cook Inlet provides approximately 80% of its fuel to generate electricity but is diminishing and will need to be replaced in the near future. The new proposal for bitcoin mining could help build interest in the North Slope pipeline approach. 

A natural gas supply provided by a proposed pipeline from Alaska’s North Slope could also serve as a bridge resource and offer the flexibility to fill in gaps when the sun isn’t shining or the wind is not blowing if Railbelt grid utilities seek additional renewable energy supplies. While not ideal from a data center provider’s net zero target commitment perspective, this North Slope option could also provide benefits to the greater Railbelt grid customer base. A fleet of MW-scale data centers incorporating renewables backed up by a long-term and secure supply of natural gas could be a game changer. One could even imagine tapping the natural gas supply as feedstock for future hydrogen supplies further down the road not just for data centers but for Alaska export opportunities.

A few words of caution

One note of caution: Data centers focused on artificial intelligence (AI) applications in the continental U.S. have been blamed for increasing energy costs for other customers, with regulators waving red flags in some other U.S. states. The proposal by Amazon to tap the Susquehanna nuclear power plant could have saddled utility ratepayers with up to $140 million in new costs, according to testimony filed by American Electric Power and the utility conglomerate Exelon. The Federal Energy Regulatory Commission put the brakes on this proposal late last year. That outcome is the last thing Alaska would want to do, though the risks for that dynamic appear quite limited given there are no existing or shuttered nuclear reactors in Alaska today. In fact, IEEE Smart Village Group issued a report about the potential for small modular reactors to serve modular data centers in Alaska late last year given their perceived advantages over traditional larger-scale nuclear technology. 

One key advantage Alaska has in terms of attracting data centers is that the state has deployed more microgrids than any other U.S. state, some running almost completely on carbon-free resources. Data centers require resilient and reliable energy supplies and are increasingly turning to microgrids to achieve these goals in the most sustainable manner possible. While the majority of Alaska’s microgrids are isolated power systems serving rural Alaska, the Railbelt grid is also composed of multiple interconnected microgrids which historically have operated semi-autonomously due to aging transmission infrastructure and a historical penchant for energy independence.

Look for a white paper exploring these data center opportunities (and challenges) for Alaska to be published by the Alaska Center for Energy and Power this spring.