Why did data centers make electricity cheaper in the past?

Electricity prices are based on cost recovery, meaning utilities divide fixed infrastructure costs across all consumers. When data centers doubled their capacity between 2015 and 2024, those same fixed costs were spread among more customers and kilowatt-hours, lowering average retail electricity prices by 3.5% nationally (about 6% statewide). Additional generators coming online to serve data centers also tended to be more energy efficient, further reducing costs.

What could make data centers raise electricity costs instead?

If utilities build data center capacity expecting heavy AI demand that never materializes, they'll have to recover the same fixed costs from fewer paying customers, raising prices. Asa Watten, coauthor of the study, explained: 'If the grid builds capacity, expecting a lot of demand from data centers, and that doesn't show up, that could be a clear story of how data centers could increase prices in the future in a way that they did not do in the past.'

How much are electricity costs expected to rise?

Goldman Sachs projects electricity costs will increase by 6% between 2026 and 2027, with an additional 3% rise by 2028. PJM, the largest U.S. power grid operator, projects a $6.3 billion increase in consumer electricity costs over the next three years, mostly attributed to increased data center power demands.

AI Regulation & PolicyAI Business & IndustryFortune AIJul 26, 2026Jul 26, 2026, 19:00 JST

Data center boom risks reversing electricity cost gains, with $7 trillion buildout at stake

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3 Key Points

What happened
A new Electric Power Research Institute study found that between 2015 and 2024, data center expansion actually caused retail electricity prices to fall—for every doubling of data center capacity, average retail electricity prices decreased by 3.5% (about 6% on a statewide level). However, Goldman Sachs projects electricity costs will rise 6% between 2026 and 2027, and 3% more by 2028, as the AI infrastructure buildout accelerates.
Why it matters
The cost savings came from spreading fixed electricity infrastructure costs across more consumers and kilowatt-hours. But if the expected $7 trillion data center spending by 2030 outpaces actual AI demand, that benefit reverses—utilities will recover fixed costs from fewer customers, raising prices. PJM, the largest U.S. power grid operator, projects a $6.3 billion increase in consumer electricity costs over the next three years, largely from data center power demands. In Virginia, the state with the most data centers, residential electricity prices have risen more than 13% in the last year.
What to watch
The turning point hinges on whether the rapid AI buildout justifies the capacity. If hyperscalers build more data centers than AI adoption requires, Asa Watten, the study's coauthor, warns fixed costs will spread across fewer paying customers, driving prices up—the opposite of the 2015–2024 trend. Billionaire investor Mark Cuban warned on the All-In podcast this week that many data centers could become obsolete as AI becomes cheaper, while other experts note continued energy efficiency improvements (from electrification and more efficient generators) could still offset costs.

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Context & Analysis

For nearly a decade, data center expansion has been an unexpected benefit to American electricity consumers. The Electric Power Research Institute's research shows a clear causal relationship: each doubling of data center capacity between 2015 and 2024 correlated with a 3.5% drop in retail electricity prices. This counterintuitive pattern reflects how electricity markets operate differently from typical commodities. Rather than pricing based on production cost (like soybeans or gasoline), utilities recover costs by dividing fixed infrastructure expenses across the total consumption. More data center demand meant more kilowatt-hours to split those costs, and more efficient generators coming online to meet that demand—a virtuous cycle for consumers.

That cycle is now at risk. The $7 trillion data center buildout projected through 2030 assumes sustained, rapid AI adoption. But if that adoption slows or plateaus while utilities have already expanded capacity, the math flips. Fixed costs that would have been divided among heavy data center usage will instead be spread among fewer paying customers, raising prices. Asa Watten, the study's coauthor, frames it plainly: the trend's continuation is "not guaranteed." Early warning signs are visible. Virginia, home to the largest concentration of data centers, has seen residential electricity prices jump more than 13% in the past year. Goldman Sachs and PJM both project significant cost increases starting in 2026, driven largely by data center expansion.

FAQ

Why did data centers make electricity cheaper in the past?: Electricity prices are based on cost recovery, meaning utilities divide fixed infrastructure costs across all consumers. When data centers doubled their capacity between 2015 and 2024, those same fixed costs were spread among more customers and kilowatt-hours, lowering average retail electricity prices by 3.5% nationally (about 6% statewide). Additional generators coming online to serve data centers also tended to be more energy efficient, further reducing costs.
What could make data centers raise electricity costs instead?: If utilities build data center capacity expecting heavy AI demand that never materializes, they'll have to recover the same fixed costs from fewer paying customers, raising prices. Asa Watten, coauthor of the study, explained: 'If the grid builds capacity, expecting a lot of demand from data centers, and that doesn't show up, that could be a clear story of how data centers could increase prices in the future in a way that they did not do in the past.'
How much are electricity costs expected to rise?: Goldman Sachs projects electricity costs will increase by 6% between 2026 and 2027, with an additional 3% rise by 2028. PJM, the largest U.S. power grid operator, projects a $6.3 billion increase in consumer electricity costs over the next three years, mostly attributed to increased data center power demands.

Fortune AIRead Original Article

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