As electricity becomes more crucial for modern society, the United States is witnessing an unprecedented surge in demand. From revolutionizing lighting to integrating personal computing, electricity consumption has historically grown steadily, until it plateaued in the mid-2000s. Now, with new forecasts showing a dramatic increase, the U.S. energy landscape is rapidly shifting.
By 2024, the national forecast for electricity demand over the next five years is projected to be five times greater than predictions made in 2022. This surge will lead to an increase of 128 gigawatts (GW) by 2029, equivalent to 13 times New York City’s peak electricity usage in 2023. This unexpected rise is straining the energy sector, prompting higher electricity prices, and pushing utilities to consider building more fossil-fueled power plants, further burdening an aging grid.
Addressing this challenge requires collaboration between state and federal energy regulators, utilities, and local policymakers. These stakeholders are pivotal in mitigating the impact of rising demand on costs and infrastructure within their jurisdictions.
Factors Driving U.S. Energy Demand
One significant factor fueling U.S. electricity demand is the expansion of data centers. These facilities could contribute to 44% of the overall load growth between 2023 and 2028, driven by a surge in cloud services and AI applications. Investment in data centers has doubled to nearly $30 billion a year since late 2022, coinciding with the emergence of AI technologies like ChatGPT. Over 50 GW of new data center capacity has been announced since January 2023.
Globally, data center capital expenditures are expected to exceed $1.1 trillion by 2029, potentially accounting for 6.7%-12% of U.S. energy consumption by 2028, according to a Lawrence Berkeley National Laboratory study.
U.S. manufacturing is also experiencing a renaissance, bolstered by the Inflation Reduction Act and the CHIPS and Science Act. Since 2021, real investment in manufacturing has doubled, with companies focusing on electronics, computer chips, electric vehicles, and solar panels, among other products. As of May 2024, 3.8 GW of electrolytic hydrogen production facilities have been announced.
The rise of electric vehicles (EVs) and building electrification is further boosting energy demand. In 2024, 1.3 million EVs were sold in the U.S., representing 8.7% of new car sales. By 2030, EVs are projected to account for up to 46% of light-duty vehicle sales, necessitating 42.2 million charging points nationwide.
Building electrification is also on the rise as households transition to electric appliances, such as electric water heaters and heat pumps. Consequently, residential electricity demand is expected to increase by about 10% by the decade’s end.
The impact of these developments varies regionally. Major data center markets like Silicon Valley, Dallas/Fort Worth, Phoenix, Chicago, and particularly northern Virginia lead in data center expansion. Manufacturing investments primarily concentrate in the Southeast and Midwest, including Georgia, Tennessee, the Carolinas, Ohio, and Michigan. Meanwhile, regions like California, New York, and New England are experiencing increased peak demand from electrification.
Consequences of Rising Electricity Demand
The soaring electricity demand in the U.S. is expected to have profound effects on the energy system, climate change mitigation efforts, and household utility costs. Several major technology firms have already reported increased greenhouse gas emissions due to extensive data center development.
While many companies are investing in solar and storage solutions to meet demand sustainably, others are contemplating retaining or expanding fossil fuel facilities. For example, Constellation Energy plans to restart a reactor at Pennsylvania’s Three Mile Island for a power purchase agreement with Microsoft.
Conversely, some companies are opting for fossil fuel solutions, such as CoreWeave’s decision to power its New Jersey data center with an existing 25 MW gas-fired plant. Similarly, demand growth in Nebraska led Omaha Public Power District to delay retiring two coal-burning generators. Between December 2023 and July 2024, utilities revised Integrated Resource Plans, adding 20 GW of new gas capacity and delaying coal plant retirements.
For consumers, increased demand could result in higher electricity bills. A report by ICF predicts electricity prices could rise by almost 20% by 2028, with Texas and New England facing larger increases. Dominion Energy forecasts a 50% increase in residential bills by 2039.
Moreover, large-scale demand could create “stranded” costs and assets, as utilities may overbuild infrastructure for demand that never materializes. This risk is amplified by market volatility and efficiency gains in industries like data centers.
Finally, the aging U.S. power grid, with many lines over 25 years old, faces reliability challenges. Extreme weather, exacerbated by climate change, further strains the system. Data centers, which require high “uptime” above 99%, exacerbate these concerns.
Strategies to Address the New Demand
With heightened load growth, policymakers face challenges but also opportunities. While data centers, manufacturing, and electrification drive economic development, they also threaten climate goals, consumer costs, and grid reliability.
At the federal level, the Trump administration supports data center growth and oil and gas production to meet energy needs. State and local policymakers must balance economic interests with affordability, reliability, public health, and emission reductions.
Direct Demand Management
Policymakers can directly manage demand sources like data centers, manufacturing, and electrification. Economic incentives linked to renewable energy standards, such as Arizona’s tax exemptions for green-certified data centers, can regulate demand. Zoning laws also give local governments power to influence energy demand, as seen in Virginia’s zoning revisions.
States can address the cost allocation of connecting new loads to the grid. In 2025, states like Virginia, Georgia, and California introduced bills to examine data center development’s energy cost burdens on consumers.
Meeting New Generation Needs
Policymakers can support clean energy to meet demand. Cities and states can procure clean energy through green tariffs and power purchase agreements. Codifying clean energy commitments and incentives can encourage clean energy buildout, with nearly half of states having binding GHG reduction or renewable energy goals.
Streamlining permitting and siting processes for large-scale generation and transmission facilities can ensure infrastructure keeps pace with demand. States like California and New York have established boards to oversee these processes.
Local governments can support distributed energy resources (DERs) like solar and storage to address load growth. SolSmart, a program designed to reduce solar installation barriers, has been linked to an 18-19% increase in solar capacity.
Expanding Transmission Capacity
Transmission is vital for connecting supply and demand. Slow transmission buildout threatens grid reliability and new generation capacity. State policymakers can regulate utility transmission plans and encourage capacity growth through requirements and incentives.
States like Minnesota, Massachusetts, and California have passed laws requiring grid-enhancing technologies to increase transmission capacity. Montana’s legislature established incentives for using advanced conductors in new transmission lines.
Federal orders require transmission providers to integrate state and local laws into planning, offering states and local governments a role in transmission scenario development and cost allocation.
Original Story at www.wri.org