Behind Microsoft’s plans to ramp up ‘carbon free’ nuclear energy to power AI and data centers

Microsoft’s race to balance its fast-growing data center portfolio with “carbon free” electricity resources is funding a deal to reopen the Three Mile Island nuclear plant as demand for artificial intelligence and data centers grows.

Three Mile Island Unit 1 near Harrisburg, Pennsylvania, was shut down five years ago by Constellation Energy for “economic reasons.” It can generate 837 megawatts at peak production, enough to run 800,0000 homes, but Microsoft will offtake that entire capacity. The other reactor at the site, the scene in 1979 of the worst nuclear accident in U.S. history, remains shut down and is being decommissioned by its owner.  

A 24/7 power source

Microsoft’s 20-year power purchase agreement with Constellation Energy, announced Sept. 20, will fund restorations of the turbine, generator, control and cooling systems, and transformer at the undamaged reactor. 

The recommissioned reactor will power new and existing data centers connected to the wholesale grid managed by PJM, the independent system operator that serves the District of Columbia and 13 neighboring states. It could be online by 2028, depending on how quickly Constellation wins approval from the Federal Nuclear Regulatory Commission and state and local agencies.

The deal provides Microsoft with a consistent base load of fossil fuels-free electricity that isn’t possible with solar or wind power plants, which offer intermittent generation, said Bobby Hollis, vice president of energy at Microsoft, during a sitdown with Trellis at Climate Week in New York City this week.

Nuclear economics shift

“There is this really untapped resource of nuclear energy that is existing or that has exited the grid recently because the economics have pushed them off as more renewables come online,” said Hollis. “The opportunity when you look at some of the existing facilities, especially those facilities that exited the grid, is how can we actually find carbon-free energy resources that can show up faster?”

Microsoft is investing in next-generation nuclear technologies through an advance market commitment with Google and Nucor. In 2023, it signaled an intention to explore contracts with existing nuclear operators. The deal with Constellation took roughly a year to negotiate, much like Microsoft’s other power purchase agreements.

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The location was chosen based on anticipated expansion in the region served by PJM, including Microsoft’s existing data centers in Illinois, Ohio and Virginia.  

Microsoft will explore additional deals in other wholesale markets where the conditions make sense. “It’s really making sure that we’ve got the right partner on the other side,” Hollis said.

Finance terms of the deal weren’t disclosed, but an independent study estimates that bringing the reactor online will create 3,400 “direct and indirect” jobs and add $16 billion to Pennsylvania’s GDP. The deal benefits from tax incentives in the Inflation Reduction Act that support the addition of carbon-free energy to the U.S. grid, regardless of the specific generation approach.

“This is an opportunity for nuclear to get on a leveler playing field from the perspective of energy resources,” Hollis said.

Microsoft isn’t the first tech company to negotiate a contract to keep nuclear power on the U.S. grid. Amazon Web Services is also securing nuclear power for its data centers. In mid-March, it disclosed a $650 million deal with Talen Energy to buy a Pennsylvania data center campus powered by one of the largest U.S. nuclear plants. 

As of August 2023, there were 93 commercial nuclear reactors in the U.S., down from a peak of 112. Nuclear plants contribute about 20 percent of the country’s grid mix, a percentage that has stayed roughly the same since 1990, according to the U.S. Energy Information Administration. 

Enormous energy appetite

Microsoft has signed contracts to procure more than 34 gigawatts of energy in 24 countries, including a five-year, $10 billion deal it announced with Brookfield Asset Management and Brookfield Renewable in April. The company, which aspires to be “carbon negative” by 2030, has adopted more than 80 measures this fiscal year to counteract its rising emissions. Its overall carbon footprint has grown 29.1 percent since 2020. 

Microsoft’s energy team, which also manages carbon removal contracts, is tasked with matching 100 percent of the company’s power consumption with carbon-free sources. They receive data about the company’s emissions reduction progress through near-daily calls with counterparts in sustainability. “It’s one of the key business groups that we have to partner with to implement the plans under the roadmap,” said Melanie Nakagawa, chief sustainability officer at Microsoft.

Both Hollis and Nakagawa are relatively new to their roles, with less than two years at the company. “The one thing that has definitely changed is the volume that we are focused on,” said Hollis.