Should You Worry about the Energy Needs of Data Centers?

It took long enough, but finally, stories about the coming AI data-center energy crunch have recently started to spread from trade publications into the mainstream media.

For example, earlier this month, the New York Times predicted that “Data Centers’ Hunger for Energy Could Raise All Electric Bills,” warning that individuals and businesses might end up paying for grid upgrades and new power plants required to serve data centers.

Run by such companies as Google, Microsoft, and Amazon, data centers — the big warehouses that house banks of computers to service the growth of cloud computing, new phone apps, and most of all, artificial intelligence — have been springing up like mushrooms over the last few years across the US, but especially in northern Virginia, where they serve computing demand of the federal government.

Reuters beat the Times to the story, and last year reported that “US electric utilities brace for surge in power demand from data centers.” On earnings calls, nine out of ten big utilities reported in 2024 that data centers would be a major source of growth in demand for power. This trend seems to have taken the companies by surprise, since only two out of the same ten companies mentioned data centers in the previous year.

“The growth is going to kick in faster than it has in decades,” said one financial analyst specializing in utility stocks. Another pointed out that data centers are “energy hogs” that draw much more power power than other types of businesses. The newest hyperscale “gigawatt data centers” can demand 1-2 gigawatts of power, enough to run a small city.

“Longer term power demand from IT equipment in U.S. data centers is expected to reach more than 50 gigawatts (GW) by 2030, up from 21 GW in 2023, according to consulting firm McKinsey’s latest estimates,” reports Reuters. Investors are concerned that utilities, used to adding new power generating capacity slowly over a period of years or decades, won’t be able to keep up with rising demand.

Even when new power plants and resources like solar farms have been planned and built, utilities have fallen behind in hooking up that new power generation to the electrical grid. In other cases, slow utility response times have delayed or even derailed new generation projects.

Meantime, demand for more electricity has continued to grow. The nationwide queue of requests for power grew from from 2,000 gigawatts in 2022 to 2,600 gigawatts the following year — and the backlog continues to grow as slow-moving utilities struggle to adapt to the new fast-growth dynamics of the power market.

If utilities can’t meet demand quickly enough, then simple economics will cause power costs to rise for all utility customers, as much as 70%, according to some experts. Others warn of a worst-case scenario of rolling blackouts, especially in areas with many data centers, including Virginia, which has more data centers than anywhere else on earth, handling roughly 70% of all traffic on the internet.

“I have to say, on a personal basis, I believe we will have rotating blackouts before this gets resolved,” said seasoned utility executive Gary Wood, president of Central Virginia Electric Cooperative, which will help to power a new data center in Appomattox.

It’s a good start that big media organizations are starting to monitor the story. But a threat to the reliable and affordable electricity that homes and businesses have come to take for granted — a threat that is as significant as it is likely to materialize — should be at the top of the news every day, all over the place.

Could the coming data center energy crunch be the least-reported big story in the economy today?

Why We Can’t Trust Utilities to Solve the Problem

So far, utilities have been reassuring the public and energy regulators that they have the situation under control, and promising that with some relatively minor changes like extending the lives of fossil fuel plants, they can supply future demand for electricity. But should we trust them?

On the plus side, their track record is good, for the most part. Big utility companies have been keeping the lights on for a century or more at costs that have remained in line with the general rate of inflation in most places.

But on the minus side, more and more experts have concluded that despite their impressive expertise and long experience, this time, utilities clearly have been caught by surprise. Blindsided by the stunning growth of data centers and their exploding demand for power in a short timeframe, the AI revolution is a new situation that traditional utilities’ past experience has not prepared them for.

“This spike in demand sneaked up on utilities and regulators,” explains an article published in home improvement magazine Hunker this month, “The New Neighbor that Could Be Driving Up the Cost of Your Utilities“:

Demand for electricity outpaced GDP in the 1970s, 80s, and 90s, but for two decades, GDP growth far outstripped the demand for electricity. Now, the trend is expected to reverse again, driven mostly by data centers using power to run and cool computers running AI applications. All of this is exacerbated by the energy industry’s inability to quickly add capacity.

After two decades of slow growth in demand for power, utilities were not ready to start building out more capacity quickly when demand for electricity began to rise again in the last couple years.

As a result, demand for power started to outrun supply, with a predictable impact on costs. “Pricing for power capacity in markets in and around Virginia has already increased from $29 to $270 per megawatt-day (MW-day), and the capacity market price for Dominion Energy in Virginia increased from $29 to $444 per MW-day.” Dominion and other utilities could pass along those costs with rates for households and business that rise between 25% and 70% over the next few years.

And since it can take a decade or more to plan and build new generating assets, especially natural gas plants, utilities should have started yesterday. Even if utilities start tomorrow to add new generation much more aggressively, it may already be too late to prevent high rates and even rolling blackouts in areas with many data centers like northern Virginia, according to a 2024 report from the Jack Kemp Foundation.

More Urgency for Solar Power

The quickest way to provide more electricity to the grid is by installing solar arrays, which can be built in 18 months or less. We hope that Virginia utilities and regulators will recognize that solar must be at the center of any strategy to supply the power needs of data centers and the rest of the economy in the coming years.

In the meantime, we are advising our customers at K-12 schools, hospitals, local governments, and businesses to consider a Plan B to protect themselves from steep utility rate hikes that appear inevitable now. On-site solar power with batteries can help institutions and businesses of all kinds lock in predictable and affordable power for the next 25 years or more no matter what happens in the power market.

To learn more, especially in Virginia, we recommend following Cardinal News, which has been a leader in covering the issue in a clear way for a general audience across the state and nationwide. Here are a couple of examples of recent important stories:

• Data centers driving ‘immense increase’ in Virginia’s energy demand, report says: Meeting the rising demand will require significant new electricity generation and transmission infrastructure, according to the JLARC study, Dec. 10, 2024.
• Energy demand will outstrip supply in Virginia as data centers proliferate: Data center-driven demand is expected to double in a decade and continue rising. Experts are raising the alarm, April 11, 2025.

And Secure Solar Futures offers a summary of the issue along with historical background and advice for both public-sector schools and government agencies and private-sector businesses to get prepared in our fact sheet, “The Data Center Energy Crunch.” Download it for free now.