In the last two decades big tech companies such as Meta, Apple and Alphabet (Google) have been racing to construct data centers across the country to keep up with the burgeoning demand for such services. More recently, the advent of AI has accelerated demand for data storage, and their pace of construction has intensified. Data centers are energy-intensive endeavors, and need reliable energy at all hours of the day and night.
In some markets--most notably Northern Virginia, where the nation’s security agencies critically depend on AI--data centers consume a significant proportion of their region’s energy consumption. In Northern Virginia and elsewhere, the supply of energy has not been able to keep pace with the demand, and prices are beginning to increase because of this.
The amount of surplus capacity in these markets--necessary because of the fact that energy demand varies significantly across each day and through the seasons--has greatly evaporated, and these places are facing an incipient threat of rolling brownouts or blackouts if the supply-demand imbalance is not addressed soon.
The consequences of not acting are stark: In a recently-published study I wrote with my colleague Sam Wolf, we estimated that energy prices could spike by as much as 70 percent in the region by the end of the decade if steps are not taken soon to ensure adequate supply, and even prices this high would not necessarily eliminate the possibility of acute shortages developing that would entail blackouts or brownouts.
While the impact of AI and new data center construction on energy prices is most acute in Northern Virginia, where as much as 46 percent of all energy consumed in the region in 2030 will go to data centers, other communities will face similar challenges at the same time: Over 30 percent of all energy demand in North Dakota in 2030 is forecast to come from data centers, and 25 percent or more of demand in Nebraska, Iowa and Wyoming will come from them.
The solutions are not complicated but it will entail a modicum of political will at the local, state and federal level. For starters, the practice of state and local governments subsidizing the construction of data centers in their jurisdiction should be summarily ended. Data centers employ virtually no one once they are completed, belying the notion that such tax breaks create a significant number of jobs for a community.
Secondly, utility regulators should forcefully reject rate structures that provide data centers with significantly cheaper energy than other commercial or residential consumers, as is often the case today. Such a practice essentially means that the other energy consumers are effectively subsidizing the energy costs of data centers, which is hard to justify from either an efficiency or equity perspective.
Finally, governments and regulatory agencies should strive to help utilities meet increasing demand by removing as many regulatory barriers to adding capacity or transmission wires to connect to power elsewhere.
For instance, efforts to bring a new generation of safer, less expensive nuclear power plants onto the grid has been met with studied ambivalence by the Federal Regulatory Commission, despite the fact that the government is spending billions--and requiring utility consumers to spend billions as well--to bring other zero-carbon emission power sources online.
And the Federal Energy Regulatory Commission has moved at a snail’s pace to approve new utility lines despite a dire need to expand the grid to bring more green power from solar or wind to utility consumers.
A former political boss of mine once told me that a politician should never solve a problem until his constituents are aware it is a problem. Households in Northern Virginia are going to start to experience the effects of the energy shortage largely created by the acceleration of the construction of data centers in the very near future, and they are not going to like it one bit. If we wait until they experience the worst of it before taking steps to ameliorate it, the problem will get much worse before it gets better.
