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A visitor observes a computer bay at the PA10 data center, operated by Equinix Inc., in Paris, France, on Thursday, Feb. 6, 2025.
In various advanced economies, the electricity infrastructure and utility costs are experiencing significant transformations due to the escalating demand for data centers driven by artificial intelligence.
This shift could lead to higher utility bills for U.S. consumers as the costs associated with these operations might be passed onto them, cautioned a recent report from the Harvard Electricity Law Initiative.
In the United Kingdom, residents may face increased wholesale prices as the government considers reforms to electricity markets that would prioritize data centers utilizing renewable energy sources.
Against this backdrop of pricing concerns, regulatory frameworks and energy grid reforms are anticipated to play pivotal roles in navigating energy costs while addressing evolving consumption needs.
The Impact of Complex Contracts
Special contracts crafted between utilities and data center operators represent one method through which the elevated costs linked to data centers could be shifted to everyday consumers, according to findings from the Harvard Electricity Law Initiative.
These contracts, which permit individual consumers to access utility services under terms unavailable to the general public, can facilitate the transference of costs from data centers to residential and commercial consumers, as their intricate accounting methods create much ambiguity.
Although approved by the Public Utilities Commission, the regulatory processes for these special contracts often lack transparency, making it difficult to determine whether costs are indeed being shifted onto consumers.
The report advocates for a more stringent regulatory approach regarding these contracts, suggesting the elimination of special agreements in favor of standardized tariff practices that would ensure equitable contribution from all data centers.
Jonathan Koomey, an authority on energy and information technology, supports the premise that data centers should be charged based on their actual grid usage, contending, “Profitable companies that add substantial loads to the grid must cover their associated costs.”
Koomey emphasized the critical role of intervenors in the regulatory landscape. These stakeholders, which can include various consumer groups and large industrial clients, contribute valuable insights that help identify issues about customer service and affordability that may go unaddressed.
Concerns Over Infrastructure Overbuilding
Utility pricing is also influenced by the excessive expansion of energy infrastructure.
States such as Virginia, North Carolina, South Carolina, and Georgia are embarking on a “major buildout of natural gas infrastructure” projected over the next 15 years, potentially hinging on inflated data center load forecasts, as reported by the Institute for Energy Economics and Financial Analysis.
To shield consumers from the financial burden of surplus infrastructure, proactive actions by utilities and regulators are essential.
Policymakers are implementing various measures to manage the burgeoning data center sector, such as offering tax incentives and drafting legislative proposals aimed at protecting non-data center customers from excessive costs, as per a report by the Gibson Dunn Data Centers and Digital Infrastructure Practice Group.
Shifts in Pricing Models
Meanwhile, the U.K. faces its own unique pricing dilemmas as the government seeks to overhaul its electricity market to create a greener, more efficient, and reliable electricity system.
The contemplated zonal pricing model, proposed under the government’s Review of Electricity Markets Arrangements, would transition away from a uniform pricing system, establishing different wholesale electricity rates based on localized demand conditions.
According to analysis by consulting firm Lane Clark and Peacock, regions like Northern Scotland may benefit from lower wholesale prices, attributed to their abundant renewable energy and comparatively lower demand.
In contrast, the remainder of the U.K., which accounts for a significant majority of national electricity consumption, is predicted to experience increased wholesale rates.
The ripple effects on retail prices remain uncertain, as wholesale costs represent only one portion of the total electricity bill for consumers. The U.K. government’s Department for Energy Security and Net Zero (DESNZ) must weigh various factors before finalizing decisions, noted Sam Hollister and Dina Darshini from Lane Clark Peacock’s energy division.
Potential Benefits for Data Centers
While technology firms support the prospect of lower costs associated with zonal pricing—as evidenced by think tank research backed by giants like Amazon, OpenAI, and Anthropic—whether data centers actually gain from such pricing will depend on their operational nature.
Facilities that can adjust their workloads in terms of timing or location, such as those engaged in AI training for deep learning models, may find zonal pricing advantageous. Scheduling these power-intensive tasks during off-peak hours or in sync with periods of surplus renewable energy could reduce operational costs and manage grid strain.
Moreover, data centers situated away from major urban areas—such as those dedicated to hyperscale AI training or extensive data storage—might also exploit cheaper electricity by leveraging locations with high renewable energy production and low local demand, according to experts.
Conversely, not all AI operations allow for flexibility; real-time tasks, essential for applications like chatbots and financial trading, require immediate processing and may not benefit from price time-shifting. This would reduce the overall viability of zonal pricing for latency-sensitive applications.
Emphasizing Enhanced Grid Infrastructure
Proponents of zonal pricing highlight the potential advantages of minimizing long-distance energy transportation.
However, with plans from the National Energy System Operator to upgrade network capabilities and incorporate more offshore wind energy, focusing on grid infrastructure remains critical; zonal pricing alone will not suffice, according to Hollister and Darshini.
They noted, “The demand for increased grid capacity is not solely driven by data centers, which may capture significant attention, but also by the rise of electric vehicle charging.” David Mytton, a researcher specializing in sustainable computing, pointed out that the shift toward electrification from vehicles poses challenges within both the U.S. and U.K. energy grids.
In the U.S., electric vehicle sales are predicted to exceed half of all new cars by 2030, exerting substantial pressure on an already aging energy infrastructure.
As electricity consumption among U.S. data centers accelerates, a report from the Lawrence Berkeley National Laboratory in December highlighted that this surge aligns with a broader increase in electricity demand stemming from factors such as electric vehicle growth, manufacturing onshoring, and the electrification of various industries.
Thus, reforms in both infrastructure and regulation spawned from the management of data centers could prove beneficial in preparing for an evolving landscape of electricity demand, as noted by Mytton and his research colleagues.
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