Data Center Energy Consumption and Its Impact on the Electric Grid

We are living during a time of unprecedented technological growth. Artificial intelligence (AI) is advancing at hyper speed, and while these advancements are celebrated by many, some fear the impact that the increase in data center energy consumption will have on the electric grid.

Many large energy users worry that already high energy prices could continue to rise as we demand more of data centers in the name of technological advancement. In a world focused on innovation and productivity, data center growth will not slow down; so what potential do data centers have to reshape energy demand? 

How Much Energy Do Data Centers Use?

Data centers use an exceptional amount of energy due to a few factors. 

• Large Computing Power: data centers can house tens of thousands of servers that run complex tasks, which require specialized, power-intensive chips. 

• Cooling: due to the amount of servers running, a large amount of heat is generated that has to be offset through air conditioning, chillers and liquid cooling. The process of cooling uses almost as much power as the servers themselves. 

• 24/7 Operation: data centers are required to run around the clock to provide constant access to data and services. This requires an uninterrupted power supply.

For reference, in 2024, data centers used about four percent of the nation’s electricity, which is about the same amount as New York City and Chicago combined. With data center growth not expected to slow down anytime soon, the grid will have to adapt in order to support the increasing demand. 

What Does Rising Data Center Energy Consumption Mean for Energy Users?

As data centers reshape energy demand, the ripple effects are already showing up in capacity prices, congestion costs and increased market volatility. The effect of increased demand is also felt disproportionately across the country. Data centers have a tendency to concentrate in specific regions that offer cheap power, sufficient land and enough water to fuel cooling systems. Virginia, for example, is home to the world’s largest data center market with data centers accounting for approximately 26% of the state’s electricity demand. In these data center heavy regions, concerns grow not only about electric prices but about the grid’s reliability. 

Although increased demand can be state-specific, the effects can be felt across entire Regional Transmission Organizations (RTOs). The recent PJM Capacity auction results are an example of how increased demand can impact millions of customers across an RTO. 

What Could Offset the Rising Demand?

It is true that data centers are contributing to increased strain on the grid and higher energy prices, however, it’s important to note that they use just two percent of global electricity today. While the rapid growth of AI and cloud computing has led to a boom in data center development, the demand growth from data centers is expected to be less than electric vehicles and industrial operations, for example. 

If data center operators invest in energy efficient solutions and are flexible when it comes to how they use energy, it could significantly offset the increased demand on the grid. 

While new generation, grid updates and investing in better infrastructure is the long-term solution, the energy market can’t wait to act while demand rises. One short-term solution is for data centers to enroll in Demand Response programs (DR programs) that can help alleviate strain quickly. Even though data centers operate 24/7, DR programs can help curtail their heavy usage on the grid during peak demand periods. Battery storage systems and switching to backup generators are two ways in which data centers participating in a DR program can reduce their energy. When data centers change the way they use energy, it helps protect other energy users from higher bills and an unstable grid. 

How Does Increased Demand Impact Energy Strategy?

With growing volatility and higher prices, large energy users with no strategy in place leave themselves vulnerable to an increasingly unpredictable market. In the past, fluctuating prices were an exception, but with demand continuing to ramp up these high prices and cost swings should be regarded as an expectation. Having an energy strategy in place can help control spend, reduce risk and most importantly relieve anxiety.

Key Takeaway

Data center energy consumption is rising fast enough to strain the electric grid and push up capacity prices, especially in data-center-heavy regions like Virginia and PJM territory. Even so, data centers account for a smaller share of electricity demand growth than sectors like electric vehicles and industrial operations. Energy efficiency, flexible operations and demand response programs can help offset the added strain while the grid catches up.