New Jersey says its new Data Center Fair Share law (S731/A796) creates a first-of-its-kind mechanism to accelerate the deployment of distributed energy funded by data centers.
Signed by Governor Mickie Sherrill on July 7, the bill would create a retail program — outside the PJM market — through which a new large load offsets its capacity obligation by paying to reduce demand elsewhere on the system.
Each utility must develop a voluntary demand-reduction trade program through which data centers fund demand flexibility created by other customers on the same electric public utility system.
The capacity benefit is then allocated to the data center. So buying down other customers’ demand shrinks the data center’s own capacity tab.
What counts as a demand reduction? The law requires that the Board of Public Utilities delineate, but mentions specifically incremental energy-efficiency improvements, demand-response enrollment, behind-the-meter energy storage and managed electrification.
This means that data centers can pay for batteries behind someone else’s meter, as well as efficiency retrofits and demand response enrollment.
The reductions must be “quantifiable, additional, coincident with the periods of system or local need,” measured and settled on an interval basis, according to the new law. The program also must “enable customers to export energy to the electric public utility system during peak hours” and establish “negative peak load contribution values for those exporting customers.”
The law states this must occur outside the PJM market, meaning it’s a retail transaction — between the data center, third parties, and the utility, not through PJM’s capacity auction. But it’s designed to flow through to PJM’s numbers anyway — the retail trade shrinks the load forecast PJM uses to size its capacity procurement, rather than clearing as a supply-side resource in the auction.
None of the program’s transaction costs can be recovered through utility rates.
The provision is among a range of strategies to protect electric ratepayers that recently became law in the state.
