If you’ve noticed your electricity bill is higher than normal recently, you’re not alone. Power is getting more expensive everywhere, outpacing inflation. One major culprit? The flurry of new data centers being built to meet demand from the AI sector.
To find out more, I asked my colleague Umair Irfan, who covers energy policy, for Vox’s daily newsletter, Today, Explained. Our conversation is below, and you can sign up for the newsletter here for more conversations like this.
What’s been going on with energy prices lately?
Electricity prices have been going up pretty dramatically over the past year. In some places, they’re rising by double-digit percentages, and they’re projected to rise even further. We’re talking about prices that are paid by consumers, so this is actually showing up on people’s power bills, which is why it’s getting a lot of attention.
There’s a couple reasons behind this. One is that electricity prices were kept artificially low during the Covid-19 pandemic, because the electricity industry is heavily regulated. A lot of regulators were under public pressure to prevent the utilities from raising prices because we were already dealing with inflation and other cost-of-living issues. Now some of those restrictions have become uncorked, and we’re seeing a rebound.
On top of that, all of the inputs for electricity have gotten a lot more expensive. Materials costs are rising in general, and then the Trump administration’s tariffs on things like steel and aluminum are making it harder to get the hardware to do things like build power lines or even replace existing power lines. Fuel prices for coal and natural gas are pretty volatile, and there’s been a rise in natural gas prices. Natural gas is the number one way we produce electricity here in the US.
We’re also seeing a pretty big increase in overall energy demand for the first time in a very long time. For the past 20-odd years, we’ve been seeing efficiency counteract energy demand increases, and so our overall energy demand has held fairly flat. Just in the past couple of years, we’ve seen a big increase in electricity usage, and that’s driven by this proliferation of data centers, particularly those there to power the AI industry.
You have a big story out about how these data centers are contributing to the price spike, in some cases even when they’re not built. What’s happening there?
Just last week, the public advocate for the state of Maryland sent a letter to the grid operator for the region, telling them that they really need to rein in energy speculation, because it’s starting to raise people’s prices.
The way that works is that in order to build a data center, you have to procure a certain amount of power in order to make sure that you can actually keep it running. And so what you’re seeing is, these tech companies are going to different utilities and shopping around and asking them, What price can you give me for this quantity of electricity? And how soon?
It turns out that in some cases, these tech companies are shopping to multiple utilities, and those utilities, in turn, are telling the grid operator, Hey, we’re going to need this much electricity in the next few years. The concern is that they’re double counting, because these tech companies are going to multiple utilities and multiple jurisdictions telling them that they’re going to need this much electricity, and they’re just window-shopping at the moment, but utilities are treating these as real bids.
The other thing is that we’re not entirely sure that a lot of these data centers are going to be built. There are some pretty wild estimates for how many more data centers we’re going to need. It’s not clear that the current trends we’re seeing are going to continue.
All that means is that you’re going to be building a lot of infrastructure to support data centers whose demand may not be there to actually pay for that infrastructure. And what that means, ultimately, is that normal customers will end up holding the bag.
This is in Maryland, but the grid operator covers much of the East Coast. We’ve got two big gubernatorial races coming up in Virginia and New Jersey. Is that coming up on the campaign trail?
It has definitely become a big issue in the New Jersey governor’s race. Both sides are blaming policies from the other party for raising energy prices. The Republican in the race is blaming renewable energy for driving up electricity costs, and the Democrat is blaming the Trump administration for canceling a lot of incentives for more renewable energy to be on the grid, as well as the infrastructure to support it. Renewable energy is right now the cheapest and fastest way to add electricity to the power grid, and by taking that off the table, you’re taking out one of the cheapest and easiest ways to bring more electricity onto the market.
In Virginia, the added complication is that it’s home to one of the largest concentrations of data centers in the world. Loudoun County, just outside of DC, has what’s called Datacenter Alley, where a huge chunk of internet traffic goes through; it’s also home to the largest concentration of hyperscale data centers for powering AI technologies. This is a very big, energy-hungry sector, and it’s a contributor to the local economy, but it also requires a lot of water, a lot of electricity, and now there’s been pushback. Many customers in Virginia and in neighboring states like West Virginia have started to protest against data centers because they’re concerned about electricity prices and other environmental costs being imposed by them.
What can consumers expect to happen with electricity prices going forward?
In the near term, electricity prices are likely to continue to go up. There doesn’t seem to be an easy out, because all the same factors that are driving up electricity prices continue to be in place.
But the thing to remember is that electricity is a subset of energy spending. If you look at the overall energy picture, consumers are actually likely to end up saving money on household energy over time, and that’s because we’re switching from fossil fuels to electricity. The biggest share of this is switching from gasoline cars to electric cars: As we connect more electric cars to the power grid, they are going to use more electricity, but electric cars are more efficient than gasoline cars, so the overall energy we use per household will eventually start to decline. We’ll see that with other appliances, like stoves and furnaces, as we switch to electricity. Electricity usage will increase, but the overall energy footprint will decrease. And we can expect over the middle and long term for people to actually start to save money, provided that these trends continue.
