Data center boom puts New Mexico’s power grid — and climate goals — to the test

Global demand for data centers is ballooning as tech companies require storage and computing facilities at accelerating rates.

Data centers house the computers that support streaming services, internet commerce, cloud-based document storage, cryptocurrency and, more recently, artificial intelligence technologies that developers are weaving into nearly every aspect of a world increasingly reliant on computers and digital media.

Meta Platforms Inc., owner of Facebook and other social media apps, communications services and AI technology, has plans to expand its Los Lunas campus with new AI computing capacity, and state Economic Development Secretary Rob Black told lawmakers during this year’s legislative session that roughly a dozen tech companies were eyeing data center development in New Mexico.

In Santa Teresa, BorderPlex Digital Assets announced plans for a $5 billion digital campus designed in collaboration with El Paso Electric, which recently saw a 150-megawatt solar and battery-storage facility break ground in Santa Teresa.

New Mexico’s Economic Development and Environment departments declined interviews for this story, but said in a joint statement: “These large energy users are driving hundreds of millions of dollars into advanced energy research and development that would not be happening except for the demand for new clean energy.”

The power required to support these energy-intensive developments presents a challenge for utilities and regulators: How to serve industries requiring high volumes of stable electricity while keeping the state on track to eliminate greenhouse gas emissions by 2050, as per New Mexico’s Energy Transition Act.

A recent study by Western Resource Advocates titled “Data Center Impacts in the West” found that annual electricity demand is forecasted to increase by 4.5% a year between 2025 and 2035, up from 1% a year from 2010 through 2023.

WRA Policy Adviser Deborah Kapiloff said data centers have changed the equation after a period of comparatively slow, predictable growth.

“A lot of customers are coming onto the grid very quickly in the next five to 10 years,” she told the Journal. “What we have seen in other states, where they don’t have the same legislative directive for meeting greenhouse gas reduction targets, is a lot of backsliding on emission reductions from utilities.”

Avoiding emissions ‘backsliding’

For example, the Arizona Public Service Co. recently walked back its commitment to producing “zero carbon” energy by 2050, citing hotter temperatures and growing demands from manufacturers and data centers.

Kapiloff said, while New Mexico and Public Service Company of New Mexico have clear commitments to meeting new demands with renewable energy, the state Public Regulation Commission would have to ensure new energy investments stay on course and protect smaller customers from bearing the costs.

For instance, microgrids — local power systems that can help power data centers — may not be subject to renewable energy targets. In 2025, New Mexico enacted a law exempting microgrids from renewable energy standards and ETA targets until 2035. They must, however, be zero-carbon by 2045.

XGS Energy and Meta announced plans this summer to build a $1.2 billion geothermal plant, producing 150 megawatts, to support the Los Lunas data center.

“The challenge of renewable energy has always been that it’s an intermittent resource, so it’s not necessarily available right at the moment that it’s needed,” Jeff Buell, a spokesperson for New Mexico’s largest electric utility, PNM, said in an interview.

“We’re 72% carbon-free in our generation resources already, so we have experience and we know how to do this,” Buell continued. “We feel confident that we’re going to be able to meet this demand, but the WRA report … raises what we know is going to be a challenge. It will take a lot of collaboration and a lot of commitment.”

It will require scaling up facilities that pair generation with the capacity to store power and dispatch it when needed. Much will depend, Buell said, on the improvement of battery technologies and lengthening storage times to ensure round-the-clock supply.

Going further, he said grid modernization — for which PNM has committed $340 million — would incorporate “smart” metering and digitally monitored distribution and efficiency checks, including real-time alerts about weaknesses or failures in the system.

“Those are converging as this new demand is arriving,” Buell said. “I think AI itself, the thing that drives data center development, is going to be a key component in operating the grid.”

Who pays for investments?

The WRA report includes warnings against sticking lower-demand customers with the costs of investments required to support loads needed by AI and other digital technologies.

“Unless regulators take affirmative steps to ensure those customers who require this higher level of power-quality are responsible for paying the associated costs ... non-data center customers will wind up subsidizing these upgrades,” the WRA report states.

Gov. Michelle Lujan Grisham signed legislation this year allowing the PRC to grant utilities special rates or tariffs to recover the costs of providing service to large customers and supporting economic development. They are also eligible for Public Project Revolving Fund money to build the infrastructure needed to serve expanding businesses.

Buell said under the law, “PNM can’t recover the costs of the infrastructure investment until either there is a customer — a data center or other large customer — that will pay for the cost of that new service and infrastructure requirement; or until PNM can prove that that resource benefits all of its customers.”

Yet a legislative analysis of the bill said it left the door open for potential burdens on existing ratepayers “if projects do not lead to the anticipated new customers.”

An approach Kapiloff highlighted is Nevada’s “clean transition tariff,” a new rate structure approved this spring by state regulators, allowing larger customers to pay premium rates for technologies supporting data centers. The arrangement was proposed by Google, Fervo Energy and NV Energy, as a long-term agreement shielding other ratepayers from the cost of the investment.

New solutions allowing utilities to acquire energy supplies not anticipated by utilities’ existing resource planning will be needed, she said, to head off a collision between booming demands and eliminating greenhouse gas emissions that drive climate change.

“The status quo isn’t working,” she said. “Now is the time to make these bold changes, and we really need to get it right.”