Data centers lowered electric bills in some places — for now
A study from the Electric Power Research Institute found that data centers initially lowered electricity costs in some regions by spreading the fixed costs of grid operation. However, this trend is reversing in areas where data center demand outpaces supply, potentially leading to higher electricity prices. State regulators are beginning to implement higher rates for data centers to cover new infrastructure costs.
A recent study by the Electric Power Research Institute (EPRI) indicates that data centers, despite their high energy consumption, have actually contributed to lowering average electricity prices in some U.S. regions through 2024. This occurs by distributing the fixed costs of operating the power grid, such as maintaining infrastructure, across a larger base of consumers, including data centers. Asa Watten, an EPRI researcher and co-author, noted that without data centers built between 2019 and 2024, residential retail rates would have been about 6% higher nationally.
Robin Millican, director of research programs at Columbia University’s Center on Global Energy Policy, used an analogy of a shared buffet to explain how more consumers can lower per-person costs. This trend has been observed in states like North Dakota, which had excess electricity supply from various sources, allowing new industrial customers, including data centers, to lower prices for existing residential users, according to Ryan Hledik, a principal at The Brattle Group.
However, this downward pressure on prices is beginning to reverse in regions where data center demand outpaces the existing electricity supply and generation capacity. Hledik pointed to the Mid-Atlantic and parts of the Midwest, overseen by the grid operator PJM, as areas experiencing this shift, potentially leading to increased electricity prices. In response, state regulators are considering and implementing new rate structures that require data centers to bear a greater share of the costs for new infrastructure like transmission lines and substations needed to meet their growing demand. This marks a departure from historical policies that offered lower rates to large industrial customers to incentivize economic growth.