Rising Energy Prices Put AI and Data Centers in the Crosshairs

The rapid expansion of artificial intelligence (AI) technologies has triggered a surge in the construction and operation of massive new data centers across the United States. These data centers, essential for powering AI applications and the broader digital economy, are driving unprecedented electricity demand. However, this growth has also brought rising energy prices, strained power grids, and political and economic challenges into sharp focus. As AI and data centers become central to innovation, they are simultaneously becoming a focal point of scrutiny from consumers, policymakers, and utility companies.

Key Takeaways

• Data centers today consume about 4% of the electricity generated in the United States, with projections to rise to between 6.7% and 12% by 2028, driven by the AI boom and rapid data center development.

• Rising energy prices, slow natural gas buildouts, and aging infrastructure are creating supply challenges for power companies, pushing electricity costs and utility bills higher for consumers.

• Tech companies tout investments in renewable energy, such as solar farms and grid-scale battery storage, to mitigate rising energy costs and reduce carbon footprints, but challenges remain in scaling renewables growth quickly enough.

The Growing Energy Demand of Data Centers

For over a decade, electricity demand in the United States held steady, but this trend has shifted dramatically in recent years. According to the U.S. Energy Information Administration (EIA), electricity demand from commercial users, including data center operators, has grown annually by 2.6%, outpacing residential growth which increased only 0.7%. Industrial users have also increased their consumption, with a 2.1% annual growth rate. This surge highlights the increasing strain on the power grid as AI and data center development accelerate.

Data Center Locations and Concentrations

Data centers are heavily concentrated in key hubs such as northern Virginia, Texas, and California, where tens of thousands of servers operate continuously to support AI applications and cloud computing. Hyperscale facilities in these regions consume vast amounts of electricity—some equivalent to the annual demand of 100,000 households.

The Lawrence Berkeley National Laboratory estimates that data centers accounted for about 4% of the electricity generated in the U.S. in 2024. This share is expected to increase significantly as data center development accelerates to meet the demands of AI and other digital services.

Electricity Consumption Growth by Sector (Annual % Increase)

Sector	Annual Growth Rate (%)
Commercial Users	2.6
Industrial Users	2.1
Residential Users	0.7

Source: U.S. Energy Information Administration (EIA)

Impact of Rising Energy Prices on Consumers and Industry

Wholesale electricity costs near data centers have soared, rising by as much as 267% compared to five years ago in some regions. These rising energy prices are passed on to customers through higher utility bills, affecting households and businesses alike.

Economic and Political Challenges

The surge in power demand from data centers has created economic and political challenges for communities near data center locations. For example, residents in Baltimore and northern Virginia have reported sharp increases in their electric bills, with some households facing 50% or more hikes in monthly costs. Local governments and regulators are grappling with how to allocate the costs of grid upgrades and infrastructure expansion fairly.

The Inflation Reduction Act initially supported renewables growth, but potential repeal or scaling back of key provisions threatens to hamper renewables growth, exacerbating reliance on fossil fuels and further pushing up energy prices.

Rising Energy Prices and Consumer Concerns

A recent survey commissioned by solar installer Sunrun found that 80% of consumers are worried about the impact of data centers on their utility bills. This concern is amplified by the fact that data centers consume a growing share of electricity, driving up electricity prices and power bills in regions with dense data center activity.

Expert Opinion

"The rapid expansion of data centers is a double-edged sword. While fueling AI innovation and economic growth, it also strains our electricity grids and drives up costs for everyday consumers. Scaling renewable energy and improving energy efficiency in data centers are critical to addressing these challenges," says Dr. Emily Chen, Energy Policy Analyst at the National Renewable Energy Laboratory.

Managing Energy Consumption and Efficiency in Data Centers

Data center operators and tech companies are actively seeking ways to improve energy efficiency and reduce power consumption. This includes investing in energy-efficient computing technologies, optimizing server utilization, and sourcing renewable energy.

Energy Efficiency Technologies and Strategies

• Use of advanced cooling systems to reduce the energy required for temperature control.

• Deployment of energy-efficient chips designed to perform AI calculations with fewer watts.

• Implementation of energy management software to monitor and optimize power usage in real time.

These measures help mitigate the impact of rising energy prices on power costs and utility bills while supporting sustainability goals.

Energy Use Breakdown in Data Centers

Energy Use Category	Percentage of Total Energy Use
Computing Power (Servers)	60%
Cooling Systems	7-30% (varies by facility)
Other Infrastructure	10-15%

Source: International Energy Agency (IEA)

The Role of Renewable Energy in Powering Data Centers

Renewable energy, particularly solar farms, has become a critical component of new generating capacity. The energy source's low cost and modularity make it attractive for powering data centers, and projects typically take about 18 months to start delivering power.

Challenges with Natural Gas Power Plants and Renewables Growth

Natural gas power plants, another energy source favored by data center operators, face significant delays. New natural gas power plants take approximately four years to complete, and a backlog of turbines has extended delivery timelines to up to seven years. This slow natural gas buildout has left data center developers in a bind.

Meanwhile, renewables growth is threatened by political uncertainty and potential policy changes. The EIA expects renewables to dominate new generating capacity through at least the next year, but experts warn that repealing parts of the Inflation Reduction Act could slow this trend.

Comparison of Energy Sources for Data Centers

Energy Source	Share of Electricity for Data Centers (2024)	Typical Project Timeline	Challenges
Natural Gas	40%	~4 years	Turbine backlog, export demand
Solar (Renewables)	24%	~18 months	Policy uncertainty, scaling renewables
Nuclear	20%	Varies	Aging plants, regulatory hurdles
Coal	15%	N/A	Environmental concerns

Source: International Energy Agency (IEA), U.S. Energy Information Administration

Challenges and Opportunities Amid Rising Energy Prices and AI Expansion

The rapid development of AI and the associated surge in data center energy consumption have created significant challenges and opportunities for the energy sector and tech companies alike. Rising energy prices put AI and data centres in the crosshairs of public concern, as electricity costs and utility bills continue to climb, driven by increasing electricity demand from data centers and industrial users.

Natural gas power plants remain a critical energy favored source for data center operators, but slow natural gas buildouts and a backlog in turbine deliveries have hindered the ability to meet demand promptly. Electricity generators rose their output to support this growth, yet much of the new natural gas production is directed toward the domestic market's exports rather than local consumption. This dynamic has strained power grids and contributed to higher electricity prices.

Meanwhile, big tech companies are making substantial capital expenditures to expand data center capacity, emphasizing investments in renewable energy sources like solar and wind to meet demand sustainably. Solar farms and grid-scale battery storage projects have become essential to start delivering power quickly, helping to alleviate some pressure on the grid and mitigate the impact of rising energy prices.

However, the rapid development of data centers and AI technologies also raises concerns about the ability of the power grid to keep pace with demand without compromising reliability. The electricity generated must be efficiently distributed to avoid brownouts and surges in electricity prices that ultimately affect consumers. The Inflation Reduction Act has supported renewables growth, but potential policy changes threaten to slow progress, making it harder to meet demand with clean energy.

Furthermore, as companies strive to improve augment employee productivity through AI, the energy footprint of these technologies continues to grow, highlighting the need for ongoing innovation in energy efficiency and sustainable power supplies. The balance between supporting the global AI race and managing rising energy prices is delicate, requiring coordinated efforts among tech companies, power companies, and policymakers to ensure a stable and affordable energy future.

Conclusion and Recommendations for Data Center Operators

A single data center can make a significant impact by prioritizing renewable energy investments and energy-efficient technologies to reduce environmental impact and mitigate rising energy prices.

Recommendations:

• Prioritize sourcing electricity from renewable energy projects such as solar farms and wind power.

• Invest in energy-efficient computing infrastructure and advanced cooling systems to reduce power consumption.

• Collaborate with grid operators and power companies to manage peak demand and support grid reliability.

• Monitor energy consumption regularly to optimize energy management strategies and control utility bills.

Tech companies tout these strategies as essential to balancing the rapid growth of AI and data centers with the realities of aging infrastructure, rising energy prices, and the need for sustainable power solutions. As the AI boom continues, the intersection of data center development and energy policy will remain a critical area for innovation and public attention.

External Sources and Further Reading:

• U.S. Energy Information Administration (EIA) - Electricity Data

• International Energy Agency (IEA) - Energy and AI Report

• Lawrence Berkeley National Laboratory - Data Center Energy Use