Since the 1950s, the United States has experienced a decoupling of electricity demand from economic growth, a trend that has continued strongly in the following decades.
While the U.S. economy grew by 20% during the 2010s, electricity demand remained essentially unchanged. However, this is now set to change due to the country’s rapid growth in data centers, the electrification of its homes and vehicles, and its revitalization and expansion of the manufacturing sector.
This surge in electricity demand is unprecedented since the 1990s, catching U.S. electric utilities off guard and surprising businesses accustomed to operating at a rapid pace. For the first time, energy could become the most significant constraint on their growth.
The World Resources Institute (WRI) article, “3 Ways to Manage Skyrocketing US Electricity Demand,” explores the implications of the rapidly increasing electricity demand in the United States and offers recommendations for addressing this issue.
The article identifies three main factors contributing to this surge in demand:
1. Growth of Data Centers: The demand for cloud services and the rise of artificial intelligence applications are driving a significant increase in electricity consumption. Between 2023 and 2028, these data centers are expected to account for 44% of the overall increase in load. By 2028, their power consumption could represent up to 12% of the country’s total electricity usage.
2. Revival of U.S. Manufacturing: The resurgence of manufacturing in the United States also contributes to higher electricity demands. New facilities are being constructed to produce electronics, computer chips, electric vehicles, solar panels, and other products, all of which require substantial amounts of electricity to operate. Additionally, heavy industries are expanding, further increasing consumption.
3. Electric Vehicle Transition: The adoption of Electric Vehicles (EVs), the electrification of buildings, and the transition of households to electric water heaters and heat pumps are expected to result in a steady 10% increase in electricity demand by 2030. EVs will make up nearly 50% of light-duty vehicles in the U.S., and the country will need over 40 million charging stations by 2030.
Challenges of meeting this demand
Meeting the demand for electricity presents numerous challenges. First, the U.S. power grid is aging. Over 70% of the country’s transmission lines are more than 25 years old, with many nearing the end of their 50- to 80-year lifespans. Significant investments are needed to upgrade and expand the national grid, which is long overdue.
Second, the rising electricity demand could negatively impact progress in the fight against climate change. Many major tech companies are already reporting increased greenhouse gas emissions due to their expansion activities.
Although these companies invest in clean energy solutions, such as solar power, battery storage, and more stable energy sources like nuclear and geothermal, many utility companies are still retaining or expanding their fossil fuel generation to meet demand.
For instance, CoreWeave, a cloud computing startup, will power its data center in New Jersey with an on-site 25 MW gas-fired power plant. Similarly, Nebraska’s new data center has delayed the retirement of two coal generators.
As electricity demand continues to rise, it could lead to higher consumer electricity prices. Therefore, regulators, as well as state and local officials, play a crucial role.
They must protect their constituents from cost increases and ensure that the expanded electricity generation and grid systems do not accumulate as “stranded” assets. This could result in costs being shouldered by households or businesses rather than by the tech and data centers that initiated these investments in the first place.
Addressing increasing electric demand in the U.S
The growing demand for electricity in the United States presents both challenges and significant economic opportunities nationwide. At the federal level, the Trump administration has strongly supported the construction of new data centers.
During his campaign, President Trump pledged to “drill, baby, drill,” aiming to lower energy costs for consumers by boosting fossil fuel production in the nation.
At the state and local levels, officials face the challenge of balancing economic development, energy affordability, and commitments to addressing climate change.
To achieve this, the World Resources Institute (WRI) article suggests that states leverage economic policies, such as sales and property tax incentives, to encourage businesses to meet specific energy performance standards, like achieving carbon neutrality or procuring renewable energy.
For instance, in Arizona, data centers that attain green building certification can receive a tax exemption lasting 10 to 20 years. Similarly, in Illinois, data centers must be either carbon-neutral or certified under recognized green building standards to qualify for the state’s sales tax exemption.
Local governments can utilize zoning laws and permitting processes to manage the growth of data center energy demands, mitigate noise pollution, ensure adequate distance from residential areas, and promote renewable energy generation for large industries.
To protect households from rising electricity prices, states can introduce legislation aimed at understanding and mitigating the energy cost burdens caused by data center developments.
States can implement legally binding greenhouse gas (GHG) reduction targets and clean or renewable energy goals to support investments in renewable energy infrastructure, thereby ensuring they can meet the increasing electricity demand.
Moreover, reducing the timelines associated with permitting and siting new large-scale generation and transmission facilities will help ensure that necessary infrastructure keeps pace with growing demand.
Lastly, the U.S. urgently needs to expand its transmission capacity. States like Minnesota, Massachusetts, and California have enacted laws requiring utilities to consider grid-enhancing technologies to improve the capacity of existing transmission lines.
In Montana, the legislature has directed its Public Service Commission to create incentives for building new transmission lines using advanced conductors that can carry more energy than traditional technologies.
If the significant increase in electricity demand in the U.S. is not managed effectively, it could lead to higher greenhouse gas emissions, increased consumer bills, and a less reliable grid.
Fortunately, various policy solutions are already in development. Quick action is essential to connect the new energy demands to the grid while ensuring reliability, affordability, and sustainability.
Sources:
Goldsmith, I, & Greene, Z. (2025, March 20). 3 Ways to Manage Skyrocketing US Electricity Demand. WRI. Retrieved from https://www.wri.org/insights/managing-electricity-demand-growth-us?
Seiple, C. (2024, October). Gridlock: the demand dilemma facing the US power industry. Wood Mackenzie. Retrieved from https://www.woodmac.com/horizons/gridlock-demand-dilemma-facing-us-power-industry/
Silvernman, A., Glatz, S., & Lahvis, M. (2024, December 11). Can regulators protect small customers from rising transmission costs for big data centers? Utility Dive. Retrieved from https://www.utilitydive.com/news/regulators-protect-small-customers-rising-transmission-costs-data-centers/735155/
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