AI boom sends electricity bills in US skyrocketing

When Kurt Borchardt opened his latest electricity bill, he thought there was a mistake.

"Our electric bill doubled in one month. Almost a $3,000-$4,000 jump on a single bill," wrote Borchardt, co-owner of Artisanal Brew Works in Saratoga Springs, New York, describing the shock on social media.

The brewery had already endured a slow winter season, traditionally its weakest period. Then came what he said was a 133-percent increase in electricity prices. The company's National Grid bill has now become its second-largest expense after rent, squeezing margins at a time when customer traffic remains slow.

"When I saw that bill, I fell out of my chair," Borchardt told local television station WTEN. His frustration reflects a broader national trend.

Electricity prices in the United States are emerging as a new source of economic strain, raising concerns about inflation, industrial competitiveness and political risk, particularly after a colder-than-average winter drove up heating demand and tightened natural gas markets.

The most recent US Bureau of Labor Statistics Consumer Price Index report showed that overall inflation rose 2.4 percent in the past 12 months ending in January while electricity prices increased 6.3 percent. Though gasoline prices have fluctuated, electricity bills have continued to climb steadily, placing sustained pressure on both households and businesses.

One key factor behind the rise in electricity prices is surging power demand from data centers and artificial intelligence applications. As the US accelerates investment in AI infrastructure, electricity consumption from large-scale computing facilities has expanded rapidly, placing additional strain on an already aging power grid.

"Since electricity is a very inelastic good, these price increases will continue to put upward pressure on inflation," Aaron Pacitti, an economics professor at Siena University, told China Daily. "One of the main drivers of this increase is the rise in electricity demand from data centers and increased usage of AI."

According to Lawrence Berkeley National Laboratory, data centers accounted for about 4.4 percent of total US electricity consumption in 2023. Depending on the pace of broader economic growth, that share is projected to rise to between 6.7 percent and 12 percent by 2028.

Similar challenges are emerging in other major technology markets as governments seek to balance the rapid growth of artificial intelligence with the need for a reliable power supply.

In the United States, the surge in electricity demand is already beginning to show up in capacity markets.

PJM's latest capacity auction for the 2027-28 delivery year fell 6,623 megawatts short of its reliability requirement, underscoring a growing imbalance between electricity supply and demand, according to a Dec 17 news release from the grid operator, which serves 13 states and the District of Columbia.

Capacity auctions are forward-looking markets in which grid operators secure commitments from power plants to ensure sufficient supply during future peak demand periods.

"But this auction leaves no doubt that data centers' demand for electricity continues to far outstrip new supply, and the solution will require concerted action involving PJM, its stakeholders, state and federal partners, and the data center industry itself," said Stu Bresler, executive vice-president of market services and strategy at PJM.

Economists warn that persistently higher utility costs could weigh on overall economic momentum.

Production costs

For manufacturers, especially in energy-intensive sectors, higher electricity prices translate directly into rising production costs.

"Higher energy costs will act as a drag on growth and competitiveness for US firms and heighten the affordability issues facing US households," Pacitti said. "Since demand from data centers and AI is unlikely to subside anytime soon, these price increases will act as a modest headwind to growth."

Beyond demand growth, structural challenges are also contributing to the problem. In many parts of the country, utility companies purchase electricity through wholesale markets, and when demand rises faster than supply, prices increase for all consumers, according to Ari Peskoe, director of the Electricity Law Initiative at Harvard Law School.