Low-Energy Fridays: Are data centers increasing electricity prices?
Data centers are so hot right now—and not just because of the waste heat. From the halls of Congress to the digital world of podcasts, it seems like all people want to talk about is artificial intelligence (AI), data centers, and the relationship between the two.
It’s a big topic with all sorts of social and political implications. But since this is Low-Energy Fridays, we won’t be getting into all that. Instead, I thought it would be good to review some of the basics about data center energy use to help keep perspective when having some of those other conversations.
Data centers are not new. Fundamentally, a data center is just some buildings filled with a bunch of computers. They’ve been around for decades without anyone so much as noticing. What is new is the scale. So-called “hyperscaler” data centers provide massive amounts of computing power used to store data and run AI programs. The power demands from these data centers can be substantial. In Texas, data centers currently use 5 to 7 times as much power as the entire city of Waco.
Big numbers like this can be vertigo inducing, so it’s important to keep several caveats in mind. First, many data center growth projections are likely overstated. Because of the long lead-times needed to get approval for a new large load to connect to the grid, some data center companies will begin the approval process with multiple utilities before deciding where the data center will be located. This can lead to double- or triple-counting in load growth projections. Additionally, a significant number of projects will never reach completion due to changed financial or logistical considerations. A recent analysis from Goldman Sachs suggests that as much as 40 to 50 percent of the new data center capacity scheduled for completion over the next two years will end up delayed or canceled.
The growth is still substantial (though less eye popping) when more realistic projections are used. For example, the Goldman Sachs analysis anticipates that the energy demand from data centers will grow from roughly 31 gigawatts (GW) in 2025 to 66 GW in 2027. While significant, it’s important to remember that current U.S. electric demand exceeds 1,200 GW—meaning data centers will remain a small fraction of overall demand. And data centers aren’t the only (or even the main) source of projected electric demand growth. According to an analysis by The Brattle Group, demand for electricity for industrial purposes is projected to grow nearly 40 GW by 2030.
Finally, as we’ve discussed before, the relationship between data center growth and electricity prices is complex. While you might expect that an increase in demand for electricity from data centers would raise electricity prices, the relationship has been just the opposite. Increasing electricity demand has gone hand in hand with lower electricity prices, and a doubling of data center capacity has been estimated to reduce residential electric rates by 4 percent. This is because increasing demand means the fixed costs of the grid can be spread out over a larger consumer base so that each individual pays a lesser portion of the total.
Of course, there’s no guarantee that this trend will continue. Many other factors could result in increasing energy prices if data center growth continues apace; but whether that growth leads to higher electricity prices for other consumers depends on the policy responses imposed. While data center growth is certainly an important topic, it’s one that calls for a calm, measured response.