Last week, the Denton City Council approved Denton Municipal Electric’s requests to amend a power purchase agreement with Core Scientific, an Austin-based tech company that plans to run high-powered computing for artificial intelligence at its Denton facility.
Core Scientific plans to convert the two largest buildings still being built out into space for high-powered computing for AI instead of crypto mining.
Unlike the cryptocurrency mining operations at the facility, which are air-cooled, Core Scientific won’t power down its AI computing during peak demand or when energy prices increase. Instead, high-powered computing for AI requires continuous operation and air conditioning to remain cool “at all times,” Terry Naulty, DME’s assistant general manager, told the council at the Aug. 20 meeting.
The AI computing system is expected to come online between April and July 2025.
The City Council voted 5-0 to approve amending the power purchase agreement and amending its lease agreement with Core Scientific. Council members Brian Beck and Brandon Chase McGee were not in attendance at the meeting.
“Interestingly, this is about a billion-dollar investment into the community and all the tax revenues associated with that,” Naulty told the council last week. “It does involve the installation of backup generators and some heat exchangers to control the environment.”
The council also approved an amendment to the city’s lease with Core Scientific to include an additional 2.1 acres for the backup generators and heat exchangers.
DME spokesperson Stuart Birdseye offered insight about the billion-dollar investment via email Tuesday, saying that the investment relates to the property improvement and business personnel associated with AI computing.
Also, Birdseye said, “once operational, the HPC operation has the potential to reduce rate pressure” on residential customers.
In June, NPR reported that Electric Reliability Council of Texas, which operates Texas’ grid, asking for new regulations to get a better understanding of how many new data centers are coming online and get concessions from them “to agree to ramp down power use when needed.”
Alison Silverstein, a former state and federal grid operator, told Austin NPR station KUT, “We cannot grow the grid fast enough to keep up with demand, even before we had every crypto and data center and blah, blah, blah trying to move to Texas.”
The Denton City Council’s approval comes at a time when data centers are beginning to delve into high-speed computing to power AI. The International Energy Agency reported that the 2,700 AI data centers in the U.S. consumed 4% of the country’s total electricity in 2022, and that number will grow to 6% by 2026.
Experts also warned in June that Texas’ power grid was facing new strains from a growing tech sector of data centers for AI computing and crypto mining that were expected to consume record levels of energy.
Core Scientific couldn’t be reached for comment by Tuesday evening.
Birdseye pointed out that while the state’s grid is anticipating this significant energy demand from AI computing and crypto mining, DME is a municipal-owned utility that is vertically integrated, providing generation, transmission, distribution and retail energy supply.
“DME will self-supply the power supply to meet these new demands on the DME system, unlike the competitive retail market, where provision of retail service is separate from generation/power supply,” Birdseye said.
Last week, Naulty told council members that the energy used by the AI computing in Denton will be 100% renewable via the renewable energy credits (REC) in the short term, followed by long-term agreements that he didn’t specify for the council.
On Tuesday, Birdseye explained that the RECs “are painstakingly tracked and accounted for by ERCOT” — as are the renewable attributes associated with renewable energy generation.
This means that whenever DME purchases a REC, it is “associated with an equivalent megawatt-hour of renewable energy.”
But it doesn’t mean that it is 100% directly from that green energy source.
As the Kleinman Center for Energy Policy reported in 2023, “The most puzzling aspect of RECs is the fact that they do not represent the actual electricity that results from green energy production — only its social and environmental components.
“Since the actual electricity and the RECs are often sold separately in what are called unbundled certificates, the electricity itself being used by a company that acquired RECs is not inherently any cleaner (or dirtier) than that from its next-door neighbor which has never heard of these certificates.”
Birdseye added that RECs purchased by DME are retired and “equates to actual renewable energy generation.” He wrote that it was the same way “that DME’s contracted renewable energy sources are awarded RECs by ERCOT and are retired by DME.”
At the Aug. 20 council meeting, Naulty offered details on what’s needed to power the AI at Core Scientific, including:
- 22 backup generators to be installed
- 60 air-cooled heat exchangers
- Energy support for a Level 3 data center to run 24 hours a day
As for peak demand growth, DME expects it to continue, stating:
- Forecast known peak demand to increase over 56% by 2044. Additional large loads are very likely.
- Max peak demand could rise by 84% by 2044 with electrification and continued economy that is strong.
Council member Paul Meltzer asked Naulty what the consequences would be to the city if Core Scientific were to go bankrupt again.
“So, if Core Scientific were to go bankrupt, there are two aspects: One is the existing cryptocurrency operation, which is larger than this proposed amendment — we’re fully protected under that agreement,” Naulty said. “And as evidenced by the fact that when they did go bankrupt before, we were paid 100% on everything that they owed.”
Naulty said they also have a “very high level of security in place” and additional security for the new AI-computing operation that, if needed, allows DME to stop immediately providing electricity and invoice Core Scientific every two weeks instead of monthly for the electricity it’s used.
“We have sufficient cash on account as part of their collateral requirement to protect our residents,” Naulty said.
In fact, DME couldn’t necessarily decline to provide the energy Core Scientific needs since it is already a customer now, Birdseye pointed out via email Tuesday.
“DME is obligated to serve this customer just like DME is required to serve any homeowner, commercial or industrial customer in the area served by DME,” Birdseye wrote. “The [high-powered] data center will be subject to forced outages just like other customers and as such — this is one of the reasons they intend to install backup generators, which is something any customer within DME is able to do.”