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Nationwide, electricity prices are on the rise, stoking voter discontent and increasingly casting a spotlight on the burgeoning artificial intelligence industry and its insatiable data center appetite, all against the backdrop of looming U.S. midterm elections.
According to data from the U.S. Energy Information Administration, residential utility bills saw an average increase of 6% across the nation in August compared to the same period last year. While the drivers of these price hikes are multifaceted and vary regionally, a concerning trend has emerged in several states with significant data center concentrations: electricity prices are climbing at a significantly faster pace.
Specifically, Virginia witnessed a surge of 13%, Illinois experienced a 16% jump, and Ohio saw a 12% increase in electricity prices during the same timeframe. These figures significantly outpace the national average, raising questions about the role of data centers in these local energy market dynamics.
Tech giants and AI research labs are rapidly expanding their data center infrastructure, some of which consume a staggering gigawatt or more of electricity. This level of consumption is roughly equivalent to the energy needs of over 800,000 homes, effectively equaling the energy demand of an entire city. The sheer scale of this energy consumption is putting strain on local grids and subsequently impacting electricity prices for residents and businesses alike.
Virginia, a global leader in data center density, recently saw Democrat Abigail Spanberger secure a decisive victory in the state’s gubernatorial race, campaigning heavily on the rising cost of living. Spanberger directly linked the rising electricity prices to the proliferation of data centers, vowing to hold tech companies accountable and ensure they “pay their own way and their fair share” of the escalating energy costs. This political maneuvering signals potential headwinds for the AI industry’s data center expansion, particularly with the midterm elections approaching and affordability emerging as a key issue for voters.
In Washington, D.C., a growing number of Democratic senators are scrutinizing the close relationship between the administration and leading tech companies and AI labs. Senators have voiced concerns over what they perceive as overly favorable treatment towards Big Tech, accusing the administration of failing to adequately protect consumers from “being forced to subsidize the cost of data centers.”
“The techlash is real,” notes Abraham Silverman, former general counsel for New Jersey’s public utility board. “Data centers aren’t always great neighbors. They tend to be loud, they can be dirty, and there’s a number of communities, particularly in places with really high concentrations of data centers, that just don’t want more data centers.”
Virginia, Ohio and Illinois
Examining the top states for data center deployments offers valuable insights into the relationship between electricity prices and data center presence. Virginia, Illinois, and Ohio, all ranking among the top contenders for data centers, are primarily served by PJM Interconnection, the largest grid operator in the U.S.
PJM oversees electricity transmission across 13 states, serving a population of over 65 million. The grid operator is grappling with a growing imbalance between electricity demand and supply. PJM relies on capacity auctions to secure sufficient power from generators ensuring grid reliability.
The capacity auction for the 2024-2025 period resulted in a bill of $2.2 billion, however, the following auction for 2025-2026, the bill skyrocketed by more than 500% to $14.7 billion. Independent market monitors have discovered that data center demand, both current and projected, factored into a $9.3 billion cost, or 63% of the total capacity market costs for the 2025-2026 period. At the most recent auction, prices jumped 10% to $16.1 billion.
“Data center load growth is the primary reason for recent and expected capacity market conditions, including total forecast load growth, the tight supply and demand balance, and high prices,” stated Monitoring Analytics, an independent watchdog firm, in its June report.
These capacity market increases are trickling down to consumers in the form of pricier utility bills. Even states that are not considered data center hubs, like New Jersey, are feeling these affects with a reported 20% year-over-year electricity price increases.
“It is an extremely large component of the affordability crisis we’re experiencing right now,” Silverman stated, regarding the impact of data centers on capacity market prices.
Beyond data centers, there are other explanations for rising electricity prices. The aging electric grid requires significant upgrades at a time of overall inflation, and the costs of building new transmission lines are increasing in the double digits.
Utilities also indicate that rising rates can be linked to the expansion of domestic manufacturing growth as well as broader electrification, such as electric vehicles and heat pumps.
While some factions of the Democratic party blame the current administration, PJM began experiencing tight energy costs even before the current presidential term began.
PJM struggles with bringing new electrical capacity updates online, resulting in a “crashed and burned” effect, accoring to Silverman. Federal subsidies under the Inflation Reduction Act caused a influx of renewable energy projects awaiting grid connection updates. Approvals can take up to 5 years at a time, and PJM struggles to keep up.
The grid would be experiencing tight power regardless of data centers, but the rapid, unprecedented growth of them has lessened the time the market has to adjust to it.
President Trump promised to halve utility prices during the first year of his 2021 term. Due to tight power prices, this hasnt happened, and likely won’t.
“It’s hard to see utility bills coming down in this decade,” said Rob Gramlich, president of Grid Strategies, a power sector consulting firm.
Texas and California
The relationship between electricity prices and data centers is less transparent in other states. Second only to Virginia, Texas is home to over 400 data centers. Electricity prices rose 4% in August 2024. While this might not seem noteworthy, it’s actually lower than the national average.
Texas operates it’s own grid called ERCOT, allowing new suppliers to connect to the grid in around three years, according to February 2024 documents.
California has nearly 80% higher resedential utility prices than the national average. Despite having the thrid most data centers of all states, August 2024 electricity prices went up only 1% from the prior year.
One of the many reasons California rates are so high is due to efforts to prevent wild fires.
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