The Data Center Boom: How AI and Electrification Are Reshaping Energy Demand and Prices

The rapid expansion of data centers—fueled by artificial intelligence (AI), cloud computing, and digital services—is driving unprecedented electricity demand across the U.S. At the same time, broader electrification trends in buildings and industry are pushing energy needs even higher. As we move toward 2030, this surge in demand is likely to have significant implications for energy markets, potentially leading to higher electricity costs.

Here’s what you need to know about where demand is growing, how power grids are responding, and what this means for future energy prices.

The Growing Power Demand Across the U.S.

Grid planners are raising their electricity demand forecasts at a pace not seen in decades. Initially, national power demand was expected to grow at around 2.6% over the next five years. That has now jumped to 4.7%, largely due to new data centers and industrial electrification.

Independent System Operators (ISOs), which manage regional electricity grids, are all revising their projections upward:

• PJM (Mid-Atlantic & Midwest): Peak demand in 2029 is now forecast at 165.7 GW, up 8% in just two years, with data centers playing a key role.
• ERCOT (Texas): Demand is expected to rise by 43 GW through 2029 due to AI-driven data centers and crypto mining.
• MISO (Midwest) & CAISO (California): Both regions are preparing for major industrial and data center growth, with over 60% of new data centers expected to be built here and in PJM.
• NYISO (New York): Data centers are driving short-term demand growth, but long-term projections lean more toward building and transportation electrification.
• ISO-NE (New England): Electricity demand is forecast to grow 17% from 2024 to 2033, with electrification of heating and transportation as key drivers.
• SPP (Central U.S.): Also experiencing rising electricity needs, particularly from industrial expansion.

Source: EPRI

Where Will the Power Come From?

With electricity demand rising, the key question is: Do we have enough power? The answer depends on how quickly new generation and infrastructure can come online.

1. Reviving Old Power Plants & Expanding Generation

Some data centers are turning to dedicated power sources to ensure reliability. In Ohio, developers plan to build a natural gas-fired power plant specifically for a new data center. Similarly, Microsoft is reportedly exploring deals to reopen retired nuclear plants to power its operations.

At the same time, renewable energy is playing a major role. Many tech giants are securing wind and solar contracts to meet their sustainability goals. However, because renewables are intermittent, additional investments in energy storage and firm power sources (like natural gas and nuclear) will be necessary.

2. Transmission Challenges

Even if enough electricity is generated, getting it where it’s needed is another challenge. Many data centers are being built in areas with limited grid capacity. Expanding transmission infrastructure is vital to ensuring a stable power supply and avoiding bottlenecks. Without faster permitting and grid upgrades, some projects could face delays or higher costs.

Beyond Data Centers: The Impact of Electrification

While AI and cloud computing are grabbing headlines, broader electrification trends will likely have an even bigger impact on power demand over the next decade.

• Building Electrification: Cities and states are pushing to replace natural gas heating with electric heat pumps, which could nearly double electricity demand in some areas during winter.
• Industrial Electrification: Factories are shifting away from fossil fuels for heating and production processes, increasing grid reliance.
• Transportation Electrification: Electric vehicles (EVs) are contributing to load growth, but in the immediate future, industrial and building electrification will likely have a greater impact.

Together, these trends will accelerate demand growth and create new pressures on energy markets.

Will This Push Energy Prices Higher?

The fundamental rule of economics applies here: More demand usually leads to higher prices.

Why Prices Could Rise

• Supply Constraints: Building new power plants and transmission lines takes time. If demand growth outpaces supply, electricity prices will rise.
• Grid Bottlenecks: If transmission constraints delay power delivery, some regions could see localized price spikes.
• Increased Capacity Costs: ISOs may need to procure more backup power (capacity markets), adding costs that get passed on to end users.

Why Prices Might Not Skyrocket

• More Renewables Coming Online: As wind, solar, and storage expand, they could offset some price pressure—though reliability concerns remain.
• New Efficiency Gains: Advances like DeepSeek AI, which reportedly reduces the energy needed for AI workloads, could slow demand growth in some scenarios.
• Grid Modernization: Smart grid investments and demand-side management (like incentivizing companies to use power during off-peak hours) could help balance loads more efficiently.

Still, the consensus is clear: Electricity prices are likely to rise, especially in regions with rapid demand growth and limited new supply.

What’s Next?

The U.S. power sector is undergoing its most dramatic shift in decades. Data centers, AI, and industrial electrification are reshaping electricity demand faster than many anticipated. The ability of power grids to keep up—through new generation, transmission upgrades, and smart grid investments—will determine whether we see moderate price increases or sharp spikes in electricity costs.

For businesses and consumers alike, staying informed and planning ahead will be key to navigating this evolving energy landscape.

For additional information please contact us to schedule a quick call.