Power-hungry data centers and other emerging industries are causing a massive increase in new demand for electricity throughout the country – delaying coal plant retirements and causing utilities to propose a lot of new gas-burning power plants – resulting in more air pollution and skyrocketing electric rates.
Energy demand and cost impacts
The mid-Atlantic is ground zero for data center developments worldwide. Up to 70 percent of all internet traffic runs through data centers powered by utilities in PJM, the mid-Atlantic regional transmission operator. According to a new analysis, data centers are currently estimated to add an additional $160 billion in electric grid costs through 2040.
Different approaches to cost allocation could reduce or increase bill impacts for the 65 million people in PJM’s footprint, cost impacts that are not equally shared. Several utilities give substantial discounted rates to attract data centers (upwards of 50% what a residential customer pays), meaning that a greater share of grid enhancement costs – like new power plants and transmission – will be transferred to captive residential utility customers.
Source: Interregional Data Map from PJM
Energy demand and emissions impacts
By 2040, data center demand will drive the need for 114 gigawatts (GW) of new energy generation throughout PJM, which is comparable to the energy needed to power roughly 92 million homes. Diving deeper, data centers will increase the total energy needed to meet demand by 49 GW, or a total of 20 percent, compared to a scenario with zero new data centers. The portion of the data center energy demand pie in PJM is expected to rise from 6 percent (50 TWh) in 2023 to 24 percent (350 TWh) by 2040.
Data center demand for electricity will also increase carbon dioxide (CO2) emissions by 1,014 million short tons. That’s a 36 percent increase in emissions compared to no increase in demand from data centers. Emissions increases are driven by a combination of extending coal-burning at power plants beyond their planned operations and the addition of 42 gigawatts of new gas-burning capacity through 2040, enough to power 34 million homes.
Mitigate runaway energy inflation
The additional $160 billion increase in electric grid costs through 2040 are tied to the increased demand for electricity from power-hungry data centers. That’s a 10 percent increase for the average residential ratepayer in PJM, but impacts will vary by state, with higher increases in Virginia, while other states with fewer data centers will see slower utility bill increases.
In addition to the increase in costs to cover infrastructure, we also analyzed two cost allocation scenarios between data centers and other customers to determine what other monthly rate impacts residential customers could face due to the build-out of data centers.
First – if data centers were to cover 100 percent of system-wide costs based on their energy demand, thus avoiding increased utility bills for other customers – the average data center rate would need to increase by 53 percent in the near-term (2025-2030) and 11 percent in the long-term (2031-2040).
Second – and what is happening now in some places – utilities provide a discount rate to data centers in order to attract their business. With a data center rate discount of 30 percent, the average residential customers could see their monthly utility bill increase by an additional $4.40 (2025-2030) and up to $8.40 (2031-2040), based on a 2022 forecast of utility data. This is an average rate increase for millions of residential customers throughout PJM, and could be substantially higher for residential customers in Virginia due to the massive concentration of data centers in the northern part of the state.
The monthly rate increases do not factor in the additional 10 percent average increase across PJM to cover the infrastructure needed to support new data centers, nor does it account for the day-to-day costs to keep a power plant running, like fuel or operations and maintenance. As an example of a “regular” rate increase, in West Virginia, Appalachian Power Company customers are bracing for a monthly utility bill increase of $25, if approved by the West Virginia Public Service Commission.
What comes next?
A clean and reliable electric grid will benefit everyone and power our country into the future while reducing coal and gas emissions, improving public health, and mitigating the impacts of our changing climate. The Sierra Club has issued a series of recommendations to meet growing demand with 24/7 renewable energy and clean capacity. Sign our petition asking tech companies to follow Sierra Club’s recommendations and honor their own climate commitments.