Alberta Data Centres: Opportunity and Opposition
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Data centres have faced growing public backlash in the United States. In Alberta, opposition has been less widespread, and the provincial government supports the industry, but communities are raising concerns.
This week, our guests –Deirdre Sheehan, Partner and Co-Chair of the Regulatory, Indigenous and Environmental practice at Osler, and Marcus Rocque, Vice President of Research at the ARC Energy Research Institute, review the main concerns surrounding data centres, using the topics outlined in Premier Smith’s recent video as a guide:
- What is a data centre, and why does Alberta want them?
- Didn’t other places get burned by data centres?
- How do Albertan’s actually benefit from these data centres?
- Will my power bill go up?
- What about water?
- Who decides where these data centres get built?
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Episode 338 transcript
Disclosure:
The information and opinions presented in this ARC Energy Ideas podcast are provided for informational purposes only and are subject to the disclaimer link in the show notes.
Announcer:
This is the ARC Energy Ideas podcast, with Peter Tertzakian and Jackie Forrest, exploring trends that influence the energy business.
Jackie Forrest:
Welcome to the ARC Energy Ideas Podcast. I’m Jackie Forrest.
Peter Tertzakian:
And I’m Peter Tertzakian, welcome back. Well, it’s been a whirlwind week last week.
Jackie Forrest:
Yes. So Peter, tell us all about it. What were your impressions from the Canada Investment Summit?
Peter Tertzakian:
Well, the Canada Investment Summit was held at the same time as the Toronto International Film Festival. So I arrived the weekend prior. And to give you a sense, the Uber pulled into the hotel, and there was all these people with cameras and just citizens waiting for celebrities to come in. And I just pulled up, and I felt like getting out and waving to the crowd and see if they would recognize me, but I refrained from that.
But it was a tremendous week. I didn’t see any celebrities from Hollywood, although apparently Seth Rogen was floating around the hotel somewhere. But there was certainly a lot of celebrities from the finance world. The Larry Finks from BlackRock and so on were all there. In fact, according to the Prime Minister’s count, there was over $120 trillion worth of capital represented, of investor capital, all the way from Singapore Sovereign Wealth Fund to Middle East, everywhere.
And I spoke to many people at the investment summit during the breaks and stuff, and many of the international investors had never been to Canada, had never really considered investing in Canada, but were certainly very impressed by the way the show was put on. I certainly was impressed, and it felt rather inspirational as a Canadian to be hosting. And many of them said that, “I have never seen this much money represented in one room at one time.” And I think that’s a testament to the convening power of our prime minister, who’s of course been a central banker for two central banks, Canada and the UK. It was really impressive, and I was honored to host and moderate the energy session.
Jackie Forrest:
And was it people from mostly the US, or was it people from Asia, Middle East? What was the makeup, from your perspective?
Peter Tertzakian:
Yeah, about two-thirds of the representation, not surprisingly, given the size of the economy, was United States investors. And then the balance was European and Asian, Middle Eastern, and of course Canadian pension funds and big investors here as well.
Jackie Forrest:
Okay. So some of the media criticism was, “Wow, there’s no capital that’s been invested yet.” People expect it to happen right away. What do you think to that?
Peter Tertzakian:
It’s a bit presumptuous to think that people are going to come and immediately open their checkbook and say, “Here’s $50 billion for a power plant,” or something like that. It doesn’t work that way.
I can tell you that the summit was a series of plenary sessions, but there was, I think the number was over 270 one-on-one meetings in back rooms between provincial officials, federal officials, investors, and, of course, representation from the CEOs. And I should say that there was a prospectus book that the Canadian government had circulated, and I added it up. So under conventional energy, which would be oil, gas, pipelines, there was about $100 billion worth of deals there. Clean energy, about roughly another hundred billion. Power and utilities, depending upon what you count in and out of that, and double counting with the clean energy and electrification, probably another hundred billion.
So $300 billion just in energy. And that doesn’t include the data centers, which were another 40 billion, which I would consider as an energy play, because without energy, there is no data center. So I think that criticism is a bit unwarranted, and it’s also unwarranted in a sense that it’s not for us to sit back afterward and just wait and watch it like some reality TV show unfolds. It’s up to us now to work at it, whether it’s corporate Canada, the governments, and others to follow up, much as you would if you’re trying to sell anything, to basically bring the capital in. But as a door-opening exercise, as a segue into Canada as an attractive place to invest, I think it was mission accomplished.
Jackie Forrest:
Yeah. I mean, raising capital takes a long time-
Peter Tertzakian:
It does.
Jackie Forrest:
… and it starts with the first meeting and building a relationship. So don’t worry, that wasn’t my criticism. Of course, the productivity mega deduction was big news. So basically, businesses can immediately deduct 100% of the cost of new investments. And that means that the returns are better. In fact, there’s been a number of reports out, BMO estimates for oil and gas companies, it could increase cash flow per share in the range of 6% over the next few years. I think Eric Nuttall came up with a tweet saying 7%, a similar number for a company he talked to. What was the feedback on that?
Peter Tertzakian:
It was very positive. In fact, sort of the celebrity finance panel with Larry Fink and others said it was hugely consequential. And it is consequential even to oil and gas, because we’re competitive. We have to be competitive with Venezuela, Argentina, Colombia, even Ecuador for our heavy oils. We’re going global. So we have to make sure that the money preferentially comes here and not elsewhere. And our tax rate was not all that competitive. And the prime minister said and demonstrated that, I think the overall tax rate for the incentive now makes us the most competitive in the G7.
And if we want to turbocharge investment and build the infrastructure in the Major Projects Office and beyond, this is a necessary and important step. And I don’t really consider it an incentive on the part of government. I consider it an investment. Because I don’t think it’s an option, as we’ve talked in the podcast before, that we have to facilitate the retooling and reconfiguring of our critical infrastructure, whether it’s rail, ports, pipelines, and so on, to go global, to get out of our North American paradigm.
Jackie Forrest:
Yeah. Well, and it’s like, okay, so you’re foregoing some taxes in the early years for a project-
Peter Tertzakian:
It’s a deferral.
Jackie Forrest:
… you wouldn’t have gotten anyway, maybe, if you didn’t offer this. Okay. Quickly, as we meet today, the oil price has really fallen over the previous weekend. I think we’re down to about 92 or $93 WTI, were over $100 before the weekend. And so we’re not going to get into oil markets too much today, but just acknowledge that there certainly continues to be a lot of uncertainty with the war, but these markets are so volatile.
Peter Tertzakian:
Yeah. I think that’s a good thing. I don’t think $100 barrel oil or plus is a good thing. It’s not a good thing for the global economy. It’s not a good thing for society. It creates polarization. And it’s also really a barometer of geopolitical unrest, which is really causing a lot of anxiety, justifiably with the military conflicts that are raging, not only in the Middle East, but also in Russia, Ukraine, with the taking out of refineries and what have you. It’s an unsettling situation. So a cooling down by the markets is a welcome thing.
Jackie Forrest:
Well, we’ll see if stays though, right? It’s really around President Trump saying he’s going to meet, potentially, with Iran. We’re also seeing more oil come out of the Strait of Hormuz. So that’s an actual structural change.
Peter Tertzakian:
Are we seeing it, or is it sort of conjectural? Because nobody really knows, unless you’re behind, as I said, a few podcasts ago, if you’ve got a pair of night vision goggles sitting on the coastline watching tankers escorted by fighter jets, is really what’s happening.
Jackie Forrest:
Yeah. But there is more data out there, I guess, that makes people believe more oil is coming out. So we’ll talk more about the oil markets and what the next turn they’ll take. Of course, this podcast, we want to talk about data centers. I attended a conference recently in Calgary a few weeks ago. I got a few takeaways, lots of opportunity, a lot of people excited about it inside the conference, but we had protestors outside who didn’t want data centers in Alberta. And so I think this week we wanted to spend some time talking not only about the opportunity to build this new sector, that’s what I heard inside the meeting rooms, but also address some of the concerns and social issues.
Peter Tertzakian:
Yeah. I think it’s important. At the investment summit, there was also an entire session on the digital economy, the CEO of Cohere and others talking about how Canada is a leader in AI. I mean, a lot of the intellectual thinking behind AI in the 1970s came from Canadians. And so the data centers are a natural extension.
I personally think, in an era of sovereignty, data centers are really essential to have on your own soil, but it is contentious. I mentioned in the prospectus the Canadian government put out that there was some $40 billion worth of data center projects, which as I said, are energy projects, but we do need to address, as I call it, the moose in the room because we don’t have any elephants here, the moose in the room, which is the opposition to AI, opposition to everything data centers, certainly accelerating a lot in the United States and spilling over here into Canada.
So we are delighted to have not one, but two special guests. First of all, we’re delighted to have Deirdre Sheehan from the law firm Osler. She’s a partner and the co-chair of the regulatory and indigenous and environmental practice. So welcome, Deirdre.
Deirdre Sheehan:
Thank you very much. I’m really pleased to be here, and looking forward to talking to you today about data centers.
Peter Tertzakian:
Wonderful. And our second guest is no stranger to the podcast, Marcus Rocque from ARC financial, vice president of research who works alongside Jackie. So Marcus, welcome back. You’ve done a lot of work on the data centers as well.
Marcus Rocque:
Yeah. Thanks Peter. It’s great to be back, and yeah, excited to dig into the data center topic. It’s being discussed very, very heavily, and there’s a lot of polarization around it. So interested to talk about some of the actual facts.
Jackie Forrest:
Okay. Let’s start with the opportunity. When you look across the country, Alberta is the place where these things are being planned. Now I know we just had a big announcement for Saskatchewan as well that maybe wasn’t in the list of potential projects that I was looking at, because I looked at a chart that showed Alberta dominating in terms of the opportunity. So why are people coming here, do you think?
Marcus Rocque:
Yeah. So I think there’s a number of things that make Alberta a really attractive jurisdiction for data centers. Obviously we have low-cost, abundant gas and that’s really become one of the major fuels that data centers are using. As you mentioned, Peter, data centers are kind of a power story.
But we also, on that power theme, have had a bit of spare capacity on our grid, which has been very rare in other jurisdictions. It’s also a cold weather jurisdiction, which makes it easier for cooling, a bit lower energy requirements. But I think the biggest thing lately is that it’s a bit easier to develop, and we actually have a government here who is supportive. I know we’ll talk a bit later about some of the opposition, but it’s pretty rare now across North America to have a government that is supportive of new data center development. And I think that’s attracting a lot of people to the province.
Deirdre Sheehan:
Yeah. The one thing I would add to that is, and this gets into some of the regulatory framework, which I think we’re going to talk about today, is the deregulated power generation sector in Alberta, which makes Alberta a unique jurisdiction, certainly for the most part within Canada, and the ease to get that power supply to the data center, which as you’d indicated, Peter, is part of the important consideration for development.
Jackie Forrest:
Yeah. So in other places in Canada, a crown corp decides if a power plant is built, but here in Alberta, you could just come and build one if you want to take the risk of what you’re going to get paid for it over time, right? So it’s very unique.
Deirdre Sheehan:
Yes. And that’s, I think, one of the other Alberta Advantage metrics that has been identified in attracting the data center development. And that’s why, even though now our grid is a bit more constrained, there are those projects in the queue, because you can have that grid connection, but you can also have your own merchant onsite developed power generation to go along with that.
Peter Tertzakian:
So the Alberta government has definitely been supportive. The other factor, Marcus, is of course there’s a lot of land in Alberta. It’s a vast, sparsely populated jurisdiction, unlike, say, the state of Virginia, which has got data center alley, and these data centers are pictured next to neighborhoods and so on. So that’s part of it as well. And there’s this video out there. Is that an Alberta government video?
Jackie Forrest:
Yeah. So our premier put out a video on social media channels outlining the six questions they have been receiving, and really to address some of the opposition that’s starting to pop up around these data center projects, including the one that was announced in Stampede time, right? There’s been actually over the summer-
Peter Tertzakian:
The Meta one.
Jackie Forrest:
Yeah, there’s the Meta one. There’s been some community groups that have opposed it. There’s been some open houses that actually have been quite hostile at times, and the ministers have been at it. So anyway, this video came out, and we want to talk a little bit about some of those questions, because those really are the questions that the opponents have. And I think sometimes, when Marcus and I started looking at this this summer, there’s different information. It’s sometimes hard to know the answers to some of these things, for sure.
Peter Tertzakian:
So what is the number one opposition issue to data centers here in Alberta?
Deirdre Sheehan:
I think just from what we’re seeing, there’s a lot of siting backlash, similar to what was seen with the renewable energy. The solar don’t take up prime agricultural land for-
Peter Tertzakian:
So like a NIMBY thing
Deirdre Sheehan:
There’s a lot of a NIMBY thing. There’s also, I think, genuine concern about what are the implications for the power price? What’s it going to do to my electricity bills? And I think just a general not understanding or feeling that there isn’t enough regulatory oversight. Marcus, I don’t know if you had some others.
Marcus Rocque:
Yeah, no, I think that’s exactly right. And the premier did touch on the major objections, and formed it in this, what are the top six questions? So this I guess kind of fell under question two, of didn’t other jurisdictions get burned? And that’s where we see a lot of the pushback, is people hearing bad stories from other jurisdictions. And as you mentioned, Deirdre, it was things like power costs, poor siting, and overly generous incentives was another one, government money going to support these projects and people not feeling like there was enough benefits coming the other way.
And there certainly were examples in other jurisdictions of things going wrong. I think on the power side, PJM is kind of the poster child of this. It contains data center alley that you mentioned, Peter. It’s one of the largest power markets in the US, and definitely the largest data center market. They’ve seen their capacity market … They have a market for both energy and capacity, so power on when you want it. The prices are up 11 times what they were a few years ago, and that’s added about $9.3 billion.
Peter Tertzakian:
So somebody’s utility bill for electricity has gone up 11 times? Is that what you mean?
Marcus Rocque:
So their bill hasn’t gone up 11 times, but when you look at your bill, there’s all these subcomponents. So one of those components is to pay for the capacity market, and that component went up 11 times. So the regulator there estimated it was about $9 billion of extra costs shared across PJM just because of data centers.
Jackie Forrest:
So there have been some stories out there. I’ve been caught up in those YouTube videos where you see the loud data center right beside people’s homes. So I think that hasn’t been helpful, but the premier did also talk about, well, why should we even want them, considering that? And she talked about the benefits, like $250 million per year from the Meta facility alone from royalties, taxes and fees. Do you think that that is enough when you consider there’s cost to having these too, right? We’re going to have reclamation, and potentially need to build up more of our power grid to support them.
Deirdre Sheehan:
So I think that just in terms of the benefits that we’re looking at from the data centers, this is a common theme that is being brought up as well. So there is the municipal tax base, which they’re going to add to any municipality. One of the complaints there is that, and I’m going to preface this by saying I am not a municipal tax specialist, but it only applies, the property that is subject to the municipal tax assessment is the land and buildings, and not the computer hardware associated with it. So it’s not the entire capital cost, for instance, of the data center.
And also the other point that Premier Smith has been making is that this, getting into the framework of bring your own generation, they’re looking at natural gas-fired co-gen plants in order to be the generation that comes alongside these data centers, which means the data centers are going to be a driver of natural gas production, which also is a royalty benefit to the province.
And so, I mean, I think that if you sort of focus in on one aspect of the equation, you have to also think about the other aspects of the equation and the overall framework. And I do think that data centers are going to be built somewhere, and what can we do here, I think, in order to attract them? From my point of view, there is a sufficient benefit when we’re looking at the development of these to consider them to be something that, in the right circumstances and designed properly, are a good thing for Alberta.
Jackie Forrest:
And I want to clarify too, that’s 250 million a year. It’s not just a one-time thing. So it is a significant-
Deirdre Sheehan:
It is.
Jackie Forrest:
… income, right?
Deirdre Sheehan:
Yeah, yeah.
Marcus Rocque:
Yeah. And just to add on that, I mean, one of the other kind of framings that the government has and that Premier Smith’s outlined in the video is that there’s been all this conversation about how do we as a province diversify into other markets? How do we get value for our resources when we’re constrained and have difficulty building pipelines to other markets? They sort of see data centers as, kind of call it a digital refinery for natural gas. So turning that natural gas into electricity and then into compute and into intelligence, kind of a more valuable commodity, rather than kind of our stranded dollar, that we’ve had problems with here.
Peter Tertzakian:
So Deirdre, talk about your practice. How does it fit into this whole data center discussion and debate and so on? Who do you represent as it relates to-
Deirdre Sheehan:
And so my practice is environmental and regulatory law and legislation, project approvals. And I have a particular focus in my practice on electricity, and power developments, and regulation. And so that’s the natural crossover and overlap with my practice and data centers. So it’s the overall permitting and approval process, but also the power and generation-specific aspects of that.
Peter Tertzakian:
Yeah. So this is critical. And I think for our audience, those who are not steeped in understanding how this all works, there’s the electrical grid that’s powered by natural gas, dominantly, power generation in Alberta. But basically, because these data centers are so large, the directive to them is, “Okay, you can build your data center, but build your own power plant. We don’t want you plugging into the grid and at the expense of the public utility bill payer.” Is that correct?
Deirdre Sheehan:
That’s correct. And I think in terms of the other jurisdictions getting burned, those are some of the themes that have been brought up and that Premier Smith was pointing to and then saying, “We have different rules in Alberta that address these.” And so I think we’ve already talked about the electricity generation specifically. So it’s not a government crown corporation that builds generation in Alberta, it’s private investment. And that’s been the case even before data centers came on the horizon.
And so building on top of that, though, one of the things Alberta has done is they initiated the data center regulation. And the data center regulation is governing how data centers can access the grid for their power, and also how they can supply their own power. What it does is it creates a new framework for these kind of connecting projects to the grid, and it’s actually a pretty big policy shift in Alberta.
Before the data center regulation, if a big industrial load wanted to come and connect to the grid and plug in, as you put it, they just got in the queue. That’s what the AESO, the Alberta Electric System Operator, the grid operator has a queue, and you just get yourself in the queue and you get your access once you go through the different stages and milestones needed for connection. But now what with data centers and the massive potential power draw, Alberta initiated this new regulation which says data centers can only get 1200 megawatts in the first tranche. And then it also set up a framework for more data centers, where it just, say, we’re going to prioritize those data centers that want to connect to our grid by giving the ones who bring their own generation, that is, build a power plant-
Peter Tertzakian:
Your own power plant.
Deirdre Sheehan:
Your own power plant, or you can enter into an agreement with another developer to build the power plant for you, you get priority. We’re going to let you go ahead first. And so that’s one of the things that Alberta has done, I think.
Peter Tertzakian:
So I think this is important. So Jackie, just give us a sense of scale here. Okay, 1200 megawatts, 1.2 gigawatts. The Meta plant, the data center is one gigawatt. So they’re going to bring their own along with Pembina, I think, and others that are powering themselves-
Jackie Forrest:
Yeah. Although I think it could expand beyond that, but that was what was agreed to go forward at this point.
Peter Tertzakian:
But again, for our audience, give a sense of scale, the total power generation of Alberta is what, like 12 or 13?
Jackie Forrest:
Well, on average, we’re consuming around 10 gigawatts, but the capacity is higher and the peak is higher. But 10, just from perspective, there’s 20 gigawatts of projects that are in the queue, saying that they want to-
Peter Tertzakian:
Plug in.
Jackie Forrest:
… plug in. Now, not all of them have gotten to the point where they have a hyperscaler behind them and they’re for sure going to go forward. But it is kind of concerning when you think of it as an Albertan. If it was the old thing and they could just all plug in, that’d be two times more than our current average load. So that’s a problem.
Peter Tertzakian:
And so in the dead of winter, minus 30, no wind, no sun, we’re consuming 12-ish probably at the peak. Meanwhile, a data center wants to come in and, quote, plug in, so it’s no surprise that the province is saying, “Bring your own power and create your own generation.” Right?
Jackie Forrest:
Yeah. But in terms of the people that came to that conference a few weeks ago, the developers, there was a lot of Americans here, which they’re kind of like, “Well, it’s hard to build these things.” So they’re up here learning about Alberta. But also they were saying that this regulation is very helpful.
But I still look at it, does it increase our power bills? The video that the premier put out, she said electricity bills won’t go up, and that transmission costs could actually even come down, because now we’re going to have more load on the same transmission system. So that if you actually kind of parse that out by how much power we use, the unit cost should go down. My concern is we are giving up a lot of our spare capacity. You talked about the 1.2 gigawatts.
Well, that was kind of free capacity on the system. Yes, they’re going to build their own generation, but it might be out of sync at times, where they come on a little bit before the power generation comes. So I don’t know, Marcus, you’ve looked at this. Do you think that there’s the potential for power bills to go up as we kind of get a tighter power system?
Marcus Rocque:
Yeah. So I think there’s definitely the potential. And I think unfortunately this is one of the areas that’s just genuinely complicated, so people are going to seize on the facts that sort of align with their point of view. But I think it’s important to understand, when they talk about power bills, what makes up a power bill? There’s all the different components that are on your bill that we talked about before, but there’s the energy or generation piece, there’s the transmission piece, the distribution piece. The government has really focused on that transmission piece in their messaging.
Peter Tertzakian:
So just to be clear again, for the audience members that are not familiar with this, those big gigantic power line towers have to be paid for.
Marcus Rocque:
Yes.
Peter Tertzakian:
And there’s a fixed charge that gets distributed to everybody who’s a power user.
Marcus Rocque:
Yeah, that’s exactly right. Those giant wires that go from a generating station to a substation.
Peter Tertzakian:
The ones I wish were underground, but they’re not now.
Marcus Rocque:
All the costs associated with those, think of those costs going on the numerator, and then the denominator is sharing among all of the different rate payers. So the government’s argument in the video is that, “Oh, Meta’s paying for all of its new capacity costs.” So there’s nothing new going on the numerator, but there’s a big user going on the denominator. So that will mean it’s shared among more users. So that’s where the 6% reduction comes from.
Peter Tertzakian:
So if I go to my utility bill for electricity and look at all the line items and it says transmission, it should go down.
Marcus Rocque:
Yes.
Peter Tertzakian:
So there’s a scenario that is being argued or debated that actually, data centers can actually reduce your power bill.
Marcus Rocque:
And that’s the argument they make on the transmission piece. Now, what the critics would say is, “Okay, but there are these other pieces of your bill.” There’s the energy piece, which is essentially, we have a free market for power that you discussed, and the generators and consumers respond to price signals, and then the market clears at a certain point. And if you have more demand, that should raise the price, all things equal.
And Jackie, you mentioned the timing mismatch, and that’s where this kind of comes into play. That with the Meta facility, the data center is expected to come on before the power generation. So in that 2028 timeframe, whereas the power generation facility is coming on closer to 2030, 2031. So in that intervening time, there will be more demand on the system with no new supplies. So power prices are likely to go up then.
Now, when that generation facility comes on, and Meta has also promised to add some new renewable energy to the grid, that theoretically should balance things. So you may not have long-term power price increases, but you could have some periods where power prices get stronger.
Peter Tertzakian:
Right. But isn’t there sort of like this, I’m going to call it ideal situation, a scenario where somebody says, “Okay, I’m going to put up a data center, and I’m going to put it on a natural gas field, and power my own natural gas fired power generation into my data center and I don’t even need to plug into the grid.” So all of this stuff is moot.
Deirdre Sheehan:
Yeah. And I do think that’s a possible scenario, but given the redundancy needs for data center and their reliability, it’s a less likely scenario, I think, from a development perspective than having a grid connection for reliability and your own onsite power generation. They talk about the five nines, the 99.999% reliability, you can’t have downtime. So if something happens to your onsite generation, you need to have the backup grid, unless you’re going to build completely duplicative, two times, three times behind the fence generation in order to serve the data center’s reliability needs. And if, actually, the way the government has worked its data center levy, if you are isolated from the grid, the data centers that are not grid-connected don’t pay the levy.
Jackie Forrest:
I will say from the conference, there was a whole panel on this topic, and I came away from it, I think they’re all going to be connected, because of the reasons you say.
Peter Tertzakian:
I know there was a big build-out in the transmission towers. Is there some limit to what the grid can handle?
Deirdre Sheehan:
Yeah. So there was a big build in Alberta of the transmission infrastructure in about 2015 timeframe. And part of the criticism of the Alberta electricity bills historically and to date is that that transmission component, the one line item of your bill, is actually quite high, because of the grid-
Peter Tertzakian:
The cost.
Deirdre Sheehan:
… the cost of having that big build out on the grid. And so, I mean, I think this scenario where you’re putting data centers into the mix of customers to share that load, bringing that transmission cost down holds true, so long as we don’t have to reinforce the grid and invest more in the grid, which I do think there is going to be, of necessity, some further grid-
Peter Tertzakian:
Enhancements.
Deirdre Sheehan:
… enhancements, the extent to which is determined by the AESO. Now, I will say there’s another policy initiative that the government has introduced, which is intended to mitigate the costs of those big transmission grid investments, because Alberta has moved, and this is not related to data centers specifically, but it’s moved from a zero-congestion transmission management principle to an optimized transmission planning framework. That’s a current regulatory change as well in Alberta. So before, the AESO basically had to make sure that the grid was unconstrained. So anybody wanting to put power on the grid wouldn’t be constrained by capacity in any particular region. The government has directed a change to that that says, “Well, no, let’s do a cost benefit analysis before we invest in the grid,” so there can be areas now of constraint on the grid. So that’s another unrelated, but now related policy measure to address that issue.
Peter Tertzakian:
Okay. So as Marcus said, it’s quite complicated because one line item, the transmission cost, could go down. However, the cost for consuming electricity, because of a potential shortage of power generation capacity, could go up. So we don’t really know how it’s all going to net out.
Marcus Rocque:
Yeah, I think that’s very true. And it could depend, at one year you could be up, another year you could be down. I think one thing to add, though, it’s worth differentiating between the micro impacts of what happens with the new data center in Alberta versus the bigger macro of the whole data center build out globally is sort of the reason that you can’t buy a transformer now, and natural gas turbines are five years sold out and three times more expensive than they used to be. So regardless of what the truth is in Alberta with adding data centers here, we likely are going to be paying more for power because of data centers broadly.
Jackie Forrest:
Let’s switch to the jobs. Another criticism is not enough jobs. So the Meta one, for example, says 3,000 jobs during construction, 300 long-term jobs. What do you think? Do you think that that’s a big number? I mean, there’s some criticism, “Well, you’d get more if we had a refinery or something.” I don’t know. No one’s building a refinery here, though, so I’m not sure why we’re comparing to that.
Marcus Rocque:
Yeah. No, I think that 300 is the number people key in on in particular, and it doesn’t sound very large when you compare it to a $13 billion investment. And if you look at other types of investments on number of jobs per billion dollars, you’re right, others could be higher. An oil sands B facility is probably twice that. If you invested that in solar, you’d certainly have a lot more jobs than that.
But I do think your point is well-taken that that’s not really the choice we’re making. This isn’t $13 billion of government money that we’re deciding do we spend it on a data center or something else that has more jobs. This is external parties bringing their capital here. So we’re deciding between those 300 jobs or no jobs. I think the real trade-off is not so much on how many jobs you’re getting, but are the drawbacks in terms of power or water worth it for what you’re getting?
Peter Tertzakian:
Yeah, I think so. I think there’s a dimension that’s being missed, and it was actually brought up at the Canada Investment Summit on the digital panel. And that is that having domestic sovereign computing capacity is a positive also for the people that are at the frontier of making models, AI models, and that we actually have unique capabilities here in Canada.
So in those jobs numbers that are quoted are not the really top-level software AI and usage jobs, which I think are being underestimated. Increasingly, as I said, the sovereign compute is a buzzword that is really gaining momentum. And the ability to potentially attract people to come to Canada to work in this capacity.
Marcus Rocque:
Yeah. No, I think it’s a very good point. And I think it’s something you’ve found in other jurisdictions, that once you get not just one data center, but more, you develop this ecosystem-
Peter Tertzakian:
The ecosystem-
Marcus Rocque:
… of those AI professionals-
Peter Tertzakian:
… and then entrepreneurs-
Marcus Rocque:
… the cooling technicians-
Peter Tertzakian:
… the entrepreneurs, and it sort of creates centers of excellence.
Marcus Rocque:
Yeah. And I think the extreme example of that would be somewhere like Loudoun County, which is in the heart of Data Center Alley, where there are around 500,000 people, something like 17,000 employed in data centers. And it’s, not coincidentally, the richest county in America. Now that’s an extreme example, but potentially somewhere in between there is where you could go.
Jackie Forrest:
Okay. Well, let’s talk about where they get sited, because I think that has been an area of controversy. And that was one of the questions that the premier talked about. So the premier talked about a multilayered approach to data center approvals. We had a couple of examples here. We had one proposed for Olds that was rejected. Then we have this metadata center in Sturgeon County, which some of the local residents feel like there wasn’t adequate consultation, that they just found out about it at Stampede, and there wasn’t a lot of information to the community. So what does it take to site these, and is there consultation with the communities? Just explain that process.
Deirdre Sheehan:
The one thing I’d point out, just going back to the data center regulation, in order to enter the queue to connect under the data center regulation, the data center has to provide evidence of municipal zoning approvals. So they were actually tying this siting to your data center’s ability to gain power, which I think is an important consideration.
But in terms of siting, it really is, from a where does it go perspective, municipal development approvals and zoning is really an important part of that. It is a multilayered approval process. And I think part of the frustration that people are feeling is there is no one single data center regulator in Alberta. It is a patchwork of, for lack of a better word, of approvals that are required. That said, these are approvals that are required and given by subject matter expertise, which I always tend to like from a regulatory perspective.
I don’t want an unfamiliar regulator deciding something outside their area of expertise. Department of Fisheries and Oceans shouldn’t be deciding whether a power plant should be built. That’s not its area of expertise. So the two examples are quite interesting. With respect to the one, the Synapse data center in Olds, it actually got rejected at the Alberta Utilities Commission for its power plant application, the backup generation, and the diesel generation, and the natural gas co-gen facility that was intended to power the data center. And it actually had conditional approval from the county of Olds for siting, but it was right next to a residential area. And the Alberta Utilities Commission is the regulator that decides the power plants, and it decides whether their power plant is in the public interest. So it’s a very broad decision, which does encompass siting and potential impacts on neighboring communities.
And as we know, the power is a pretty important part of the data center. And so the commission ended up rejecting that application after there was so much public outpouring of questions, and feeling like it was not the right location, and why does it need to be right next to a mature residential area? And ultimately what the Alberta Utilities Commission said is, “You have not convinced us that your power plant needs to be here. And we’re not convinced that there aren’t other places the power plant can be, which would have a lesser impact on stakeholders.”
And so it was not rejected from a municipal zoning perspective and siting. It was rejected by the utilities commission in the public interest, because they weren’t convinced that the site location was balanced all of the competing interests sufficiently.
Peter Tertzakian:
So you have a lens on all of this in your practice of what’s going on. So I want to ask you a couple questions. I mean, I know you’re not a litigation lawyer, but you’re sort of in the legal orbit of what goes on. I mean, are we seeing lawsuits starting to fly here? And I guess further to that, I want to get a general sense of what the pulse of building data centers here is today, say, relative to the US or other places. Is the opposition getting worse, or is there effective communications in play, such as what the premier is trying to do, or others are trying to do to try and say, “Hey, calm down. We’ve got a different process here. We’re trying to get these things built with consultation and so on.”
Deirdre Sheehan:
So I think that the public opposition is getting more significant to data centers in Alberta. And I think part of it is because people are becoming more aware of it. There is a lot of examples from the states and other jurisdictions that are being used to feed that in Alberta. So I do think that public opposition is increasing in Alberta to these kind of developments.
I think that from a litigation perspective, yes, we are seeing challenges. So one of the challenges that is ongoing right now is the water license associated with the Wonder Valley development in the county of Greenview. And the Sturgeon Lake First Nation or Cree Nation is challenging the process of issuing the water license to, and in this case it was the municipality of Greenview, because they’re the one developing the industrial park where the Wonder Valley data center is going to be built. And so they are actually the holder of the water license, but the process and lack of consultation is the alleged deficiency in that license. So I do think we’re going to see more of that.
Jackie Forrest:
Okay. So it’s growing, but I would say it’s less than maybe some of those places in the US, based on the people at the conference. Let’s come back to this metadata center built in Sturgeon County. Is that one approved, and do you feel like, was there consultation, or why does the community not feel like they kind of had as much visibility to that?
Deirdre Sheehan:
Right. And sorry, I segued off. So that one is in the industrial zone designation for the Heartland area in Alberta, and it is situated there, but that doesn’t mean there are any different regulatory approvals that are really needed for a data center there. I think that the reason that people feel like they weren’t consulted on that data center is because the area that that data center is going to be built is already zoned heavy industrial. It has to have that municipal designation to be part of a designated industrial zone.
And what happened in that case, as I understand it, was Sturgeon County amended the land use bylaw for heavy industrial to include data centers as a permitted use. So that’s the municipal zoning framework there. And then, so once it is a permitted use under the land use bylaw, proponent for a data center can come in and make a development permit application.
And there’s not going to be a public hearing associated with that development permit application because it complies with the permitted uses of the land use bylaw. And I think that’s the reason why I would understand that in Sturgeon County, the feeling was there wasn’t consultation on that data center.
The other thing I will say is, so the associated Greenlight Energy power plant that is going to support that data center also went through a public process before the Alberta Utilities Commission. And that can have a very large public hearing, as we’ve seen in some other cases, but for that particular development for the Greenlight Energy co-gen facility, it was 1.8-
Marcus Rocque:
Gigawatts.
Deirdre Sheehan:
Gigawatts, yes. I was going to say megawatts and I’m like, “That’s the wrong unit there.” It was approved, and partly because it is in the industrial heartland. The commission felt like it was an appropriate location for that particular facility.
And again, it wasn’t expressly tied to the metadata center. It was referenced in the application materials that this was going to be one of the potential off-takes for this particular power plant, but there was certainly an opportunity. There would have been public consultation requirements on that power plant as well. I think that to say there wasn’t any consultation is not a fair characterization, because there certainly would have been opportunities for consultation on these aspects of the project. It’s required under the regulatory.
Jackie Forrest:
So much to cover here, Marcus. Let’s quickly talk about water, because that’s been a point of contention, is that these things take a lot of water and yes, we saw the Meta information. It’s like this amount of a golf course, but is that sustainable in the context of all the other water uses that are already there? And is there someone looking at this holistically? That’s a question that stakeholders have.
Marcus Rocque:
Yeah. So I think water is a very important topic to discuss, because it is one of the top objections that people bring up. And just really quick 101, I mean, data centers use water to cool the chips. So the chips generate an immense amount of heat when the power goes through them. The cooling system will take that heat away from the chips, and then you need to reject it to the atmosphere. So the old facilities would have evaporated water to do that, and that’s why they were so water intense. The newer facilities are going to run air over that cooling loop to take away that heat. So that does mean that they use quite a bit less water. And as you mentioned in the Meta facility, that they’re talking about less than a golf course. So I think the new technology is making water much less of a concern.
But to your point, it really does matter where you’re drawing this water from. Not all water uses are equal. If you’re taking water out of a water-strained region, maybe in the southeast US, even small amounts of water could be a big deal. So you need to have a good assessment of can your local watershed actually handle that amount of water? And there is a process to evaluate that water. I’d be interested in hearing Deidre’s thoughts a bit more on explaining how that process actually works.
Jackie Forrest:
And I have one more question for you, too, because there’s a power plant that uses water, too.
Deirdre Sheehan:
Yes.
Jackie Forrest:
And that isn’t included in that golf course number, I don’t think.
Deirdre Sheehan:
Probably not. But again, Alberta has been granting water licenses for industrial purposes for decades. And so there is a pretty robust framework around new water licenses. There are certain basins in Alberta that are effectively curtailed. You cannot get new water licenses out of them, because the government does keep its eye on available capacity. When a new water license is applied for to take new surface water from a river, for instance, it is assessed against available capacity, other users, risks to supply of other users. And so to say that nobody’s taking a look at water use, I don’t think is a fair representation of the water licensing regime in Alberta. If you are in one of those basins where you can’t get water, you have to take it from a municipal source or buy somebody else’s water license. So there is a framework around that as well.
Peter Tertzakian:
Well, it’s been a fascinating discussion. I sense this is not a story that’s going away, as data centers and AI gain momentum, or AI gains momentum and the need for data centers, it’s not a story that’s going away.
I can’t help but feel that Alberta has a real comparative advantage, because we have abundant energy at the source, which is the natural gas. And so this is a space, given our land, our northern climate, all the advantages that we have, it seems like a natural place to put data centers. But I certainly recognize that the concerns are legitimate and I, like you, Jackie, have watched the American videos, which are very slick, sort of the anti-AI videos. And when you see a giant power plant outside somebody’s back fence, you kind of get it. It’s like there’s legitimate concerns. But I think that effective communications and proper siting and proper consultations, I think that was the word that was used, I don’t know, amongst the four of us probably 20 times, consultation, consultation.
It’s kind of a no-brainer, go talk to the people, and calm them down, and go through a process. And in that regard, the regulators I’m hearing go through the process. And there are definitely instances where the regulator has rejected, I think, like the Olds plant. And so the system seems to work, at least for now. The communications, I think we have to work on, because I sense that it’s a story that can get away rather quickly, where a lot of emotion gets injected into it, and your selection bias, you take the worst possible story and apply it to Alberta. I don’t think that that’s warranted.
Anyway, we have a process. This is not going away. Thank you very much. Deirdre Sheehan from Osler, with your regulatory practice, and Marcus Rocque, as always from ARC Energy Research Institute, vice president working with Jackie. Always a pleasure, Jackie. So thanks for listening and we’ll be following this story more.
Jackie Forrest:
Yeah. And thanks to our listeners. If you enjoyed this podcast, please rate us on the app that you listen to, and tell someone else about us.
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