Even if AI turns out not to be as much of an energy hog as people are making it out to be, it could still spell out trouble for power grids across the US.
Tech companies are already burning through increasing amounts of electricity to train and run new AI models. And they’re asking for a lot more electricity as they try to outcompete each other. That rising demand is already starting to reshape the energy system, with utilities scrambling to build out new gas plants and pipelines.
But all these plans to reshape the US energy system could be based on an AI bubble. With overexcited investors pumping money into tech companies afraid of missing the bandwagon but still at risk of developing AI tools that ultimately flop, utilities are also faced with a wave of speculation over data centers’ energy needs.
“The uncertainty is unnerving”
The uncertainty is unnerving considering the costs that Americans could wind up paying when it comes to higher utility bills and more pollution, a recent report warns. A transition to cleaner and more affordable energy sources has been making progress slowly in the US. That’s in peril unless tech companies and utilities demand more transparency and opt for more renewables like solar and wind energy.
“While the AI boom provides exciting opportunities, there are many risks to not approaching energy needs with a deliberate and informed response that takes long term impacts into account,” Kelly Poole, lead author of the report published this month by shareholder advocacy group As You Sow and environmental organization Sierra Club, said in a briefing with reporters.
The nation’s fleet of gas-fired power plants would grow by nearly a third if all of the new gas projects proposed between January 2023 and January 2025, as the generative AI industry heated up, come to fruition. The amount of new gas capacity that utilities and independent developers proposed jumped by 70 percent during that time frame, driven in large part by rising data center electricity demand.
Prior to the generative AI boom, electricity demand had pretty much flatlined for more than a decade with energy efficiency gains. But new data centers, souped-up for AI, are a lot more energy-hungry than they have been in the past. A rack of computers in a traditional data center might use 6-8 kilowatts of power — roughly equivalent to the power used by three homes in the US, Dan Thompson, a principal research analyst at S&P Global, explained in the briefing. AI, however, requires more powerful computer chips to run more complicated tasks. The power required to run one of those high-density racks equals about 80 to 100 homes’ worth of power, or upward of 100 kilowatts, according to Thompson.
“Essentially what you’re looking at is a small town’s worth of power being deployed,” he said.
Why does that matter? Power grids basically function as a precarious balancing act. If power supply can’t meet demand growth, it could lead to higher utility bills and potential outages. On the other hand, overbuilding new capacity risks creating stranded assets that utilities and their customers wind up paying for regardless of whether or not they actually need them in the long term. That’s why it’s so important to try to get an accurate forecast of future demand.
“Essentially what you’re looking at is a small town’s worth of power being deployed.”
And while AI does use a lot of energy, projections for the future get murky. “Speculators are flooding the market,” the report says, seeking to build and flip data centers. Trying to get ahead of long wait times to connect to the power grid, some of those speculators are requesting power even before they’ve got the capital or customers lined up to ensure they can bring a project to the finish line. There could also be some double or triple counting (or more) going on when it comes to forecasting AI energy demand because of developers approaching more than one utility to get several quotes.
In the Southeast, a major hub for data centers, utilities are projecting as much as four times more demand growth compared to independent analyses of industry trends, according to a report earlier this year from the Institute for Energy Economics and Financial Analysis (IEEFA). Nationally, utilities are preparing for 50 percent more demand growth than the tech industry is expecting, a separate report from December 2024 states.
Utilities themselves have recognized this risk on recent earnings calls. Proposed projects trying to connect to the grid “may be overstated anywhere from three to five times what might actually materialize,” Jim Burke, CEO of Texas-based Vistra Energy, said in a Q1 earnings call this year.
Despite the uncertainty, they’re still building out new gas power plants and pipelines to meet that demand. After all, building new infrastructure is one of the most lucrative ways for a utility to increase profits. And right now, the Trump administration — whose campaign was buoyed by oil and gas contributions — is incentivizing reliance on fossil fuels. In Louisiana, for example, local utility Entergy proposed building three new gas plants to power a giant new Meta data center. The data center is estimated consume as much electricity as 1.5 million homes and lead to 100 million tons of carbon emissions over 15 years.
It’s a stark contrast from the Biden administration’s goal of getting the power grid to run on 100 percent carbon pollution-free energy by 2035. The only way to stop climate change in its tracks is to get rid of planet-heating pollution from fossil fuels. Building a rush of new gas infrastructure obviously moves the nation in the opposite direction.
There are solutions to minimize all these risks, As You Sow and Sierra Club point out in their report. Utilities can require developers to disclose the number of other utilities they’ve brought their data center proposal to and how far along they are in finalizing a project. When inking contracts, they can also require long-term service agreements, hike-up nonrefundable deposits, and raise fees for canceling a project.
Tech companies clearly have a big role to play, too, by improving the energy efficiency of their technologies and investing in renewables. For years, tech giants including Amazon, Meta, and Google have been top corporate purchasers of renewable energy. Inking those kinds of long-term agreements to build out new solar and wind farms can have even more impact now, counteracting the Trump administration’s rollback of financial incentives for renewables, if companies are willing to prioritize their own sustainability goals as much as their AI ambitions.
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