Fuel Cells are Moving from Backup Duty to Main Power for AI Data Centers

For years, a data center was a fairly simple customer for a power company. It needed steady electricity, and the local grid delivered it. Artificial intelligence has broken that arrangement. The newest campuses ask for hundreds of megawatts at once, and the power plants and wires needed to feed them can take years to build. A Department of Energy report found that data centers used 4.4% of U.S. electricity in 2023. The Electric Power Research Institute now expects that share to reach between 9% and 17% by 2030. 

The waiting is the real problem. In January, fuel cell maker Bloom Energy Corporation (NYSE: BE) released a survey of 152 people who plan and supply data center power, including utilities, cloud providers and developers. Utilities said they need between a year and a half and two years longer to deliver service than developers expect. Developers expect about one in three data centers to run entirely on on-site power by 2030. Since the survey comes from a company that sells on-site power, its findings deserve some caution. 

Fuel cells have become a favorite tool for that job. A solid oxide fuel cell takes natural gas, biogas or hydrogen and turns it into electricity through a chemical reaction instead of burning it. Because there is no flame, these units avoid many of the air permits a turbine would need, and they go in quickly. One supplier powered a cloud computing site in 55 days. Once used mostly for backup, fuel cells now appear in projects that rival a mid-size gas plant. 

The catch is carbon. A fuel cell running on natural gas still releases carbon dioxide. Carbon capture is the answer, and fuel cells suit it well. Their exhaust carries carbon dioxide at roughly 12 times the concentration found in conventional power plant flue gas, which makes it cheaper to separate and bury. Washington still supports the effort through the 45Q tax credit, which pays $85 per ton for carbon captured from industrial and power sources and stored underground. Yet a federal audit counted only 33 carbon capture facilities in the U.S. as of March. 

A Wyoming project brings these threads together. Last month American Electric Power Company, Inc. (NASDAQ: AEP) said it would build a roughly $4 billion, 702 megawatt fuel cell plant to supply Google’s planned data center campus outside Cheyenne. The fuel cells come from Bloom Energy, and AEP plans to add carbon capture to bring emissions close to zero. The campus, known as Project Tembo, is a $17 billion development of four buildings totaling about 3.08 million square feet. 

Several companies share the work. Black Hills Corporation (NYSE: BKH), the local utility, signed agreements that took effect September 30th to serve the campus through 2048 with a 2.7 gigawatt mix of resources. That includes up to 590 megawatts from the grid and about 2.1 gigawatts from third-party sources run through a private microgrid. Tallgrass Energy, a privately held pipeline company, is building a natural gas power hub for the site, and its Trailblazer pipeline is slated to carry captured carbon dioxide to an underground storage hub in eastern Wyoming. 

The money also flows in an unusual way. Black Hills says Google will bear all of the costs of serving the data center, which shields the utility’s existing customers. AEP has used a similar approach on a smaller scale, installing customer-funded fuel cells at Ohio data centers run by Amazon Web Services and Cologix. Black Hills expects the campus to begin taking power in late 2027 and reach full demand in 2030. 

The weakest link is the part meant to make the project clean. AEP has not published the capture rate, the vendor, the cost or a start date for its carbon capture system. Google also kept the right to place the fuel cells at another site if Cheyenne stalls. If capture works as promised, utilities gain a new way to serve giant customers without waiting on the grid. If it falls short, the next project built on this model will be a harder sell to lenders and regulators.