The electrical grid could be put under strain due to increasing AI demand in the upcoming decade.

• By 2030, some entire industrialized economies could be consumed by the electricity usage of data centers in the U.S.
• As the transition away from fossil fuels continues, the number of coal plants being retired is increasing, while the demand for power from data centers is also expected to increase.
• If more power generation is not quickly added to the supply, a crunch could occur.

The surge in power demand from data centers in the coming decade, coupled with the rapid retirement of coal-fired plants, could strain the U.S. electric grid, potentially leading to power outages and blackouts.

By 2030, the power needs of data centers in the U.S. could surpass the electricity production of some major industrialized economies, as their numbers and scale continue to grow.

By 2030, the computer warehouses that drive the Internet and AI could need up to 400 terawatt hours of electricity, predicts an August report from Mizuho Securities.

The total electricity production of the United Kingdom in 2022 was less than the amount of electricity produced globally in 2022, according to data from the International Energy Agency.

While many utilities are phasing out coal plants as part of their shift towards clean energy, the demand for renewable energy sources, such as solar and wind, is high, but their reliability is still a concern.

The U.S.'s largest grid operator, PJM Interconnection, expressed in July that the system's reliability is becoming increasingly problematic as coal plants are shutting down at a faster rate than new power sources are being constructed.

PJM, which serves 13 states primarily in the Mid-Atlantic region, including northern Virginia, faces challenges due to insufficient resources and a constrained transmission system, limiting its ability to import power from elsewhere.

According to CEO Robert Blue, the growth of data centers is increasing rapidly, as a result of the increasing number of requests, the expansion of each facility, and the acceleration of each facility's ramp schedule to reach full capacity, as stated during the company's earnings call on Aug. 1.

Electrification of economy

The U.S. economy is experiencing a resurgence in manufacturing and electrification, with recent auction prices for new power capacity in the PJM power pool surging more than 800% due to increased demand and limited supply.

"PJM spokesperson Susan Buehler stated to CNBC that the market has already shifted from coal to gas and that the energy transition is happening, but the forces driving this change are happening at a faster rate than the renewable energy transition."

Buehler stated that the market is signaling a potential gap.

PJM predicts that electricity demand will increase by almost 40% in its 369,000-square mile service area by 2039. At the same time, 40 gigawatts of existing power generation, which accounts for about 21% of PJM's current installed capacity, is at risk of retirement by 2030.

Although 290 gigawatts of renewable projects are ready to be connected to the grid, only 5% of them have been constructed, according to PJM.

Renewable energy projects with a combined capacity of 110 gigawatts have been approved for connection, with another 72 gigawatts set to come online in the first quarter of 2025, but the construction of these projects is being delayed due to the challenges faced by developers on the ground, according to Buehler.

Developers are facing challenges with project siting, supply chain delays, and financing issues, according to Buehler.

Step-change in investment needed

During their recent earnings calls, at least 50 gigawatts of potential data center demand has been disclosed by utilities that operate in PJM. However, CEOs have warned that there may be some duplication in the numbers.

In the U.S., approximately 29% of current data center electricity demand is located within PJM's territory, while 25% of data center power demand is in Virginia, according to Mizuho.

Through the end of the decade, one of the largest electric utilities in the U.S. has made commitments for more than 15 gigawatts of demand from data centers, interim CEO Benjamin Fowke informed investors during the company's second-quarter earnings call last month.

According to Fowke, the demand level is equivalent to more than 40% of the peak electric load of 35 gigawatts across AEP's entire system at the end of last year, which serves 5.6 million customers in 11 states in the Midwest and South.

"Fowke informed investors that these inquiries were not casual; they were serious customers who were determined to connect to the grid and were prepared to make a financial commitment to achieve this goal."

In May, Congress heard testimony from Fowke stating that some regions in the U.S. are experiencing electricity demand that exceeds the available capacity on the grid. Xcel Energy's former CEO revealed that large customer requests would increase the current peak demand on the utility's system by more than double.

Fowke informed the Senate Committee on Energy and Natural Resources that it took over 100 years to develop our current system, and a significant increase in infrastructure investment on an expedited timeline is necessary to meet future demand in a dependable manner.

According to Fowke, the construction of new infrastructure to meet the demand is predicted to cost hundreds of billions of dollars.

Currently, a single data center often requires three to 15 times more electricity than a large manufacturing facility used to need, according to Fowke's statement to Congress.

In May, Blue stated that Dominion Energy frequently receives demands to provide power to data center campuses that need several gigawatts, which exceeds the typical capacity of a U.S. nuclear reactor.

Going around the grid

The challenge of connecting demand to the grid is that it can take up to a decade to determine the transmission line route, obtain permits, and construct it, as Edison Electric Institute senior vice president for customer solutions Phil Dion informed Congress in June.

Tech companies are increasingly considering direct connections to large power resources, such as nuclear plants, for their data centers, but this approach is already facing controversy.

In March, purchased a data center campus for $650 million that will be powered by the Susquehanna nuclear plant in Pennsylvania. This was viewed as a landmark agreement by some in the industry, suggesting that more nuclear-powered data centers could follow.

The Federal Energy Regulatory Commission has been challenged by AEP regarding the agreement, with AEP stating that such arrangements could limit the supply of electricity on the grid.

Earlier this month, CEO Joe Dominguez informed investors that the most efficient and cost-effective solution for connecting data centers to nuclear reactors is to do so directly. Constellation, which operates the largest collection of nuclear power plants in the U.S., is well-positioned to implement this approach.

According to Dominguez, the idea of amassing enough power to power a gigawatt data center on the grid is unbelievable.

The entire U.S. economy could be impacted if data center demand is not met, as utility executives have cautioned.

If I cannot obtain the required power capacity online, I will be unable to execute the data center and manufacturing processes. This will hinder the growth of the core businesses of major corporations in the country, as stated by Petter Skantze, vice president of infrastructure development at NextEra Energy Resources, during a conference in New York City in June.

"The stakes are extremely high," Skantze stated. "This is a new environment. We must succeed."