Data centers have become dominant in energy consumption, accounting for approximately 3% of total U.S. power demand. This figure is expected to rise to 9% within the next decade, driven by the increasing use of artificial intelligence (AI) and cloud computing. Northern Virginia, home to over half of the nation’s data centers, exemplifies this trend. The region’s infrastructure is under significant pressure, with energy-intensive data centers consuming twice the power generated by Virginia’s largest nuclear plant. This rapid growth signals a fundamental shift in how energy is used and managed across the U.S.
The expansion of data centers has placed immense strain on the power grid, particularly in high-demand areas like Virginia. Capacity market prices in the PJM region have surged, reflecting the urgency of addressing energy scarcity. Billions of dollars are required to develop new generation and transmission infrastructure to avoid blackouts. However, resistance from local communities and logistical hurdles complicate these efforts. For instance, proposals to build high-voltage transmission lines in Loudoun County have faced significant opposition, delaying critical upgrades needed to support increasing demand.
While renewable energy sources, such as wind and solar, now provide over 21% of U.S. electricity, their intermittent nature limits their ability to address growing demand fully. Advanced battery storage systems offer some stability, yet they are not enough to manage the surging requirements of data centers and other industries. To bridge the gap, utilities keep older fossil fuel plants operational longer than planned, highlighting the complexity of balancing immediate energy needs with long-term decarbonization goals. This underscores the importance of integrating diverse energy sources, including renewables and advanced nuclear power, to stabilize the grid.
The financial burden of accommodating the rapid growth of data centers is substantial. Dominion Energy, Virginia’s largest utility, projects a 53% increase in its rate base by 2030, likely resulting in higher consumer electricity bills. Scenarios suggest residential costs could rise by as much as 69% within the decade. To address these challenges, utilities and policymakers are exploring solutions such as minimum take clauses and increased fees for high-consumption industries. These measures ensure that data centers consume disproportionate energy and contribute to grid expansion costs.
The rise of data centers represents a paradigm shift in energy consumption that demands proactive solutions. Investments in grid modernization, renewable energy infrastructure, and innovative technologies like small modular nuclear reactors are essential. Policymakers must also adopt strategies to equitably distribute costs, ensuring the financial burden does not disproportionately impact residential and small business consumers. The decisions made today will shape the future of energy reliability and determine the nation’s ability to meet its carbon reduction goals.
Read the full report from The Jack Kemp Foundation and Capital Policy Analytics here.
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