(Bloomberg/Josh Saul, Riley Griffin and Naureen S. Malik) — Meta Platforms Inc. is venturing into the complex world of electricity trading, betting it can accelerate the construction of new US power plants that are vital to its artificial intelligence ambitions.
The foray into power trading comes after Meta heard from investors and plant developers that too few power buyers were willing to make the early, long-term commitments required to spur investment, according to Urvi Parekh, the company’s head of global energy. Trading electricity will give the company the flexibility to enter more of those longer contracts.
Plant developers “want to know that the consumers of power are willing to put skin in the game,” Parekh said in an interview. “Without Meta taking a more active voice in the need to expand the amount of power that’s on the system, it’s not happening as quickly as we would like.”
Securing a steady supply of electricity has become an increasingly urgent challenge for technology companies, including Meta, Microsoft Corp. and Alphabet Inc.’s Google. They’re all racing to develop more advanced AI systems and tools that use massive amounts of electricity. The data center campus Meta is building in Louisiana, for example, requires utility Entergy Corp. to build at least three new gas-fired power plants.
Most power companies can’t shoulder the cost of building new generation without long-term commitments from buyers to purchase electricity. For companies like Meta, trading power offers a way to sign those contracts and hedge some of the risk. A tech company, for instance, might commit to buy large amounts of electricity from a new plant under a “take-or-pay” deal, knowing that if its data centers use less than expected, it can resell the surplus into wholesale power markets.
Meta’s move into trading underscores how the huge increase in power demand is rapidly transforming the world of US energy and electricity, said Ben Hertz-Shargel of energy consultancy Wood Mackenzie Ltd.
“We’re seeing a breakdown between the demand and supply sides of the market, with the biggest actors playing on both sides,” Hertz-Shargel said. “To better orchestrate growth, you need some of the largest buyers of electricity to actively support the buildout of the supply side.”
Even amid investor concerns over an AI bubble, power demand from data centers used to build and run AI models is set to quadruple in 10 years, based on projections from BloombergNEF. The huge jump has already been raising costs for consumers, with electricity prices climbing faster than the overall rate of inflation in recent months and becoming a political issue. More power generation may help temper further increases.
Meta says the ability to trade power will give it more flexibility to secure and manage energy and capacity deals. “For example, Meta could commit to long-term purchases from power plants that aren’t yet constructed, which in turn will enable these new power plants to complete the necessary long-lead time steps to be built,” the company said in an email.
While Meta entering into power markets is a new phenomenon, companies that are large consumers of energy and commodities have long played a role in trading to manage risk. Food producers hedge their coffee and cocoa costs, airlines deal in fuel and crude markets and manufacturers trade in metals.
“It’s a natural extension” for tech companies, said Mike Kirschner, US managing director of power-modeling firm Habitat Energy Inc. and a former executive at power generator Vistra Corp. “Think about the value change — their input into production is electricity, just like for Coca-Cola, it’s cane sugar, corn syrup and aluminum.”
But hedging carries its own pitfalls. Ford Motor Co. famously used metals trading to lock in palladium costs during a massive price surge in the early 2000s. The market ended up crashing and the automaker was dealt a $1 billion loss. Tech companies will face similar risks as they enter into electricity trading, a corner of the energy markets that can be notoriously volatile and even ripe for manipulation.
The risks haven’t so far discouraged companies, including Meta and Microsoft, from seeking federal approval to trade power. In addition to being able to sell excess power supply, trading in power markets also can allow companies to sell smaller pieces of long-term contracts and possibly create access to better deals for clean-energy credits.
“Being smarter than any other guy to manage that risk offers a huge value creator — to do that you need traders, you need models, you need technology,” Kirschner said. While power providers already do this, “it makes sense that we see this go in the other direction where companies that are long power in a way they weren’t before think about how they want to manage risk to get better commercial activity,” he said.
Microsoft makes long-term commitments to developers for new clean energy, a representative said in an email. The company requires the ability to trade power because “in some regions we may need to sell some of the additional electricity supply.”
Apple Inc. obtained approval to trade power so it can execute the transactions needed to deliver clean energy to its own facilities, a representative said in an email.
Parekh said she expects Meta to ramp up by leveraging external partners to help the company learn the business before it tries to enter electricity markets as a standalone entity. Meta is focused on power from PJM Interconnection LLC, which manages the 13-state eastern grid stretching from the mid-Atlantic to the Midwest, along with the Midcontinent Independent System Operator, the central US grid. Those are competitive markets where Meta wants to see faster power-plant development, Parekh said.
Meta declined to provide a timeline for the trading operations or further details on the expected structure for its trading.
Chief Executive Officer Mark Zuckerberg has repeatedly suggested this year that he sees more risk posed to Meta by under-spending on AI infrastructure than he does from overspending on it. Zuckerberg has described this as a “strategy to aggressively front-load building capacity.” He sees it as preparation for a landmark moment when Meta has reached its goal of “superintelligence,” an evolution of AI that aims to outperform humans at many tasks.
To enable that vision, of course, Meta would need massive amounts of electricity.
“We all believe fundamentally that there needs to be rebuilding of this muscle of building new power plants and speeding up the process,” Parekh said.
–With assistance from Brody Ford and Matt Day.
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