Strategic Data Center Load Shifting: Implications for Market Efficiency and Transmission Value

TL;DR

This paper analyzes how strategic load shifting by data centers affects market efficiency and transmission value, revealing market failures and the limitations of conventional price signals in a system with flexible consumers.

Contribution

It introduces a bilevel two-zone model to study the impact of data center flexibility on market outcomes and identifies two key market failures caused by strategic load shifting.

Findings

Price discontinuities can lead to socially inefficient load shifts.

Consumers near capacity boundaries can negate transmission expansion benefits.

Conventional prices may misrepresent system value with flexible loads.

Abstract

Data center electricity use may reach 12% of U.S. demand by 2030, alongside growing ability to shift workloads geographically in response to prices or carbon signals. We examine the system-level implications of such strategic flexibility using a bilevel two-zone model that couples economic dispatch with consumer cost minimization. Two market failures emerge. First, discontinuous price changes at generator capacity limits can induce flexible consumers to shift load in socially inefficient directions; for example, toward a higher-cost region to trigger a price drop elsewhere. Second, by positioning near capacity boundaries, consumers can counteract the marginal benefit of transmission expansion: although shadow prices suggest additional capacity is valuable, strategic consumers reoptimize to offset resulting flow changes, leaving dispatch and costs unchanged. We derive conditions under which these effects arise and show that conventional price signals can misrepresent system value in the presence of large spatially flexible loads.