Data centers lower power costs, says Xcel Energy CEO

By Brian Johnson

BridgeTower Media Newswires

As data center construction takes off in Minnesota and beyond, local communities and residents are increasingly concerned about the impact of such development on the power grid and water supplies.

But the CEO of Xcel Energy is making the case that data center development is having a net positive impact on local communities as measured by job creation, economic development and even the cost of electricity.

“We run this incredible machine, we’ll call it the grid, and it’s a big, fixed asset,” Xcel Energy CEO Bob Frenzel said in a webinar Friday. “And if you put more units of production through a fixed asset, the rate for everybody comes down. So actually, a large data center load on your system should, all things being equal, drive prices down for electricity, not up.

“And I’d argue that data centers are good for economic development. They’re very expensive. They pay property taxes. They have employment. The construction jobs are good when they show up and build them.

“I actually think, regionally, we need to ask ourselves, ‘Shouldn’t we be leaning into this a bit? Isn’t it going to be an offset to the [other] price pressures that we do have in the economy?’”

Data center development is just one of the topics Frenzel discussed Friday in a wide-ranging conversation with Neel Kashkari, president and CEO of the Federal Reserve Bank of Minneapolis.

A highlight of the Minneapolis Fed’s ninth annual Regional Economic Conditions Conference, the interview also covered topics such as the future of nuclear energy, lingering supply chain issues, and the challenge of building transmission lines.

Minnesota’s construction market is generally upbeat about the future of data center development.

Asked in a recent Associated General Contractors of Minnesota survey how they believe certain market segments will perform in 2026, respondents were most optimistic about technology/data centers.

Seventy-six percent expect that segment to expand, according to the survey.

A recent Cushman & Wakefield report on data center development throughout the country reveals that the Twin Cities has been “attracting interest from hyperscalers and large colocation providers” putting the area in a good place for growth, Finance & Commerce reported.

In the conversation with Kashkari, Frenzel listed a number of reasons why the Twin Cities is an attractive landing spot for data centers.

“It is cooler. We have an enormous penetration of carbon-free resources. Our Upper Midwest portfolio is about 75% carbon free … and we are close to a major airport. We’ve got water — the land of 10,000 Lakes. We have decent internet connectivity,” he said.

Asked about the future of nuclear, Frenzel described himself as “unabashed fan” of that type of power. Nuclear supplies about 20% of the nation’s energy today and roughly 50% of the carbon-free electricity in the U.S., he added.

At the same time, he said, the nation’s nuclear fleet is close to 40 years old.

“We have to think about, are we going to revitalize that as a core energy source for the United States? I think we should. I think it should be a national imperative,” Frenzel said.

Frenzel and Kashkari also touched on the subject of supply chains, along with the challenges of building new transmission lines.

Supply chains “were really gummed up because of COVID all around the world,” Kashkari said. “They’ve mostly healed. But one area that I just keep hearing about” is the long lead times for “anything electrical related.”

Frenzel said the supply chain for certain equipment is “actually degrading in terms of time.” For example, he said, breakers, transformers and generation assets that previously could be delivered in months are now taking three, four or five years to obtain.

“The delay in the supply chain is causing us to have to behave differently and in partnership with our other stakeholders, to really be proactive about it,” Frenzel said.

As for transmission lines, Xcel Energy has been the “number one builder of new line miles” in the country over the past 15 years, Frenzel said. But those projects come with challenges.

“It’s hard,” Frenzel said. “If I build a transmission line from Duluth, Minnesota, down to Milwaukee, who pays for it? Who wants it in their backyard? We have a nimbyism thing we have to get over. We have a cost allocation thing to get over.

“And then, like everything, all politics are local. So is siting and permitting. You’re going through someone’s backyard, someone’s ranch, someone’s farm. It’s very challenging.”