Bridging the Power Gap: AI’s Impact on Energy Demand

By now, it’s no secret that the rapid integration of power-intensive AI into society is reshaping the landscape of energy demand, requiring a robust expansion of power generation and transmission infrastructure to support burgeoning data centers.  This transformation, however, is fraught with challenges, including navigating regulatory red tape and the extensive timelines required for developing new generation assets. Moreover, the question of who bears the financial burden looms large, with potential implications for other ratepayers.

• A report by the consulting firm Grid Strategies projects that in the next five years, demand for electricity in the United States will grow by 128 GW, or nearly 16% – primarily driven by datacenters and new manufacturing. Only two years ago, FERC forecasts showed 4,375 TWh of energy generation required to meet demand in 2029. Since then, that number has grown by nearly 10% to 4,774 TWh. 
• In PJM alone, peak summer load is projected to reach about 200,000 MW in the 2032/33 delivery year, up from about 170,000 MW in last year’s forecast. The Virginia Electric and Power Co. zone is expected to see the highest average annual summer load growth over the next 20 years, with just over 5% forecast growth.
• The power industry is already grappling with the challenges of meeting this demand. The latest PJM capacity auction, for instance, revealed thinning reserve margins, resulting in a staggering 900% increase in prices for the 2025/2026 delivery compared to the previous year.
• Certain PJM states, particularly Ohio and Virginia, have become datacenter “hotspots” due to their attractive combination of affordable real estate, robust connectivity, and reliable, cost-effective power. However, this has created a tough situation for local utilities like AEP Ohio, which must balance the substantial power needs of new datacenters with the desire to minimize infrastructure costs for residential and business customers.
• And this doesn’t even begin to cover transmission. Currently, low transmission construction rates and low transfer capability between regions pose challenges to maintaining reliability and meeting the forecast power demand. For instance, in 2023, the U.S. only built 55 miles of high-capacity transmission. However, planned transmission expansion investments have increased to $15.1 billion for 2024, up from $9.2 billion two years prior. Still, this growth rate may not be substantial enough to match the demand growth rate. Insufficient transmission capacity to accommodate the flow of lowest cost electricity, often referred to as grid congestion, is a pressing concern as utilities are increasingly being forced to rely on more expensive sources of power to meet demand. The resulting costs are inevitably passed onto consumers who are already grappling with rapidly increasing electric bills. 
• As the demand for electricity surges, the power industry faces significant challenges in expanding infrastructure to meet these needs. The rapid growth in energy consumption forecasts underscores the urgency of addressing regulatory hurdles and financial burdens. In our next article, we will explore the impacts on ratepayers, examining creative buildout strategies and investments required to support this growth. We’ll also consider the implications for decarbonization efforts and the evolving energy landscape. Stay tuned for a deeper dive into these critical issues.