As more data centers hook up to the grid, how will electric companies keep prices down?
The growth of power-hungry data centers raises concerns about their impact on electricity prices for households and businesses. While some studies suggest data centers can lower prices by spreading fixed grid costs, significant new infrastructure needs could drive prices up. Utilities like Vermont's Green Mountain Power are grappling with these dynamics, with Vermont's long-standing regulations requiring developers to pay for their own infrastructure upgrades.
The increasing number of data centers, particularly those supporting artificial intelligence, is prompting a debate on whether these energy-intensive facilities will lead to higher electricity prices for residential and commercial customers. While a study from the Electric Power Research Institute found that data centers generally lowered prices between 2019 and 2024, this trend is not guaranteed to continue, leading utilities nationwide to assess both the potential costs and benefits.
Green Mountain Power (GMP), Vermont's largest electric utility, is examining how large power users like data centers could impact electricity costs. Cam Twarog, a system planning engineer at GMP, explained that adding significant power consumers could lower per-unit electricity costs by distributing fixed operating expenses across more sales. However, Akshaya Jha, an associate professor at Carnegie Mellon University, warned that if new data centers necessitate substantial infrastructure development, such as new transmission lines or generating capacity, these costs could be passed on to all electricity consumers.
Vermont has a long-standing regulatory framework that mandates large developers, including potential data center operators, to bear the full cost of any new power infrastructure required for their projects. According to Twarog, this regulation means developers must pay for their own system upgrades, transmission, and sub-transmission lines. While GMP has held preliminary discussions with data center developers, none have proceeded with building in the state, potentially due to these stringent cost-recovery regulations.
Ryan Hledik, a principal consultant at The Brattle Group, highlighted the national challenge utilities face in setting rates for new large customers, ensuring they cover their incremental system costs rather than shifting them to existing ratepayers.