Data Centers and their Impact on the Grid

In the digital age, data centers have become the backbone of our information-driven society. These facilities, housing vast arrays of servers and networking equipment, enable everything from streaming services to cloud computing and artificial intelligence (AI) applications.

However, the rapid expansion of data centers across the United States has profound implications for the nation’s power grid, particularly in states experiencing the most significant growth, such as Texas, Virginia, Ohio, and Illinois.

The Surge in Data Center Growth

The proliferation of data centers is a direct response to the escalating demand for digital services. In the first half of 2024 alone, U.S. data center announcements surged, with nearly 24 gigawatts (GW) in new capacity, tripling figures from the same period in 2023. This growth is largely driven by advancements in AI, the digitization of various industries, and the increasing reliance on cloud-based services.

Texas: The Lone Star State’s Data Boom

Thanks to its relatively low energy costs, favorable regulatory environment, and ample land availability, Texas has emerged as a focal point for data center expansion. The state’s primary grid operator predicts that power demand will nearly double by 2030, partly due to the influx of large energy consumers, such as data centers.

In January 2025, a significant development underscored this trend: “Stargate,” a joint venture between OpenAI, SoftBank, and Oracle, announced plans to invest up to $500 billion in AI-related infrastructure. Texas is poised to be the epicenter of this initiative, with 10 data centers already under construction and an additional 10 planned. Each facility is projected to occupy half a million square feet, significantly amplifying the state’s energy requirements.

Virginia: The Data Center Hub

Virginia, particularly Northern Virginia, has long been a hub for data centers, often referred to as “Data Center Alley.” The state’s data center load is projected to triple electricity demand, primarily due to unconstrained growth in this sector. This rapid expansion raises concerns about the state’s ability to build new power generation facilities swiftly enough to meet the burgeoning demand, potentially leading to increased utility bills for all Virginia customers.

Ohio: Balancing Growth and Grid Stability

Ohio is also witnessing a surge in data center development, contributing to a significant uptick in electricity demand. The state’s grid operator has expressed concerns about a potential electricity crunch, as demand escalates while supply remains stagnant. This imbalance poses challenges to grid reliability and underscores the need for strategic planning to accommodate both new and existing energy consumers.

Illinois: Expanding Data Infrastructure and Grid Adaptation

Illinois has emerged as a key player in the expansion of data centers, particularly in the Chicago metropolitan area and its surrounding regions. The state’s strong fiber optic network, central geographic location, and tax incentives have made it an attractive destination for large-scale data center projects. In 2024, multiple hyperscale data center developments were announced, with some facilities projected to exceed 1 million square feet.

However, this rapid growth presents challenges for Illinois’ power grid. Utilities, such as ComEd, are investing billions in transmission and distribution upgrades to accommodate the increasing demand. Additionally, the state’s commitment to clean energy—mandated by the Climate and Equitable Jobs Act—complicates the integration of new, energy-intensive facilities. Illinois regulators are exploring innovative solutions, including microgrids and enhanced energy storage, to balance economic growth with sustainability goals while ensuring that residential and small business consumers are not disproportionately burdened by rising electricity costs.

Impact on Energy Demand and Grid Resilience

The expansion of data centers in these states has resulted in a substantial increase in energy consumption. Data centers are energy-intensive by nature, operating 24/7 to ensure uninterrupted service. A single large facility can require upwards of 100 megawatts (MW) of power, equivalent to the annual consumption of approximately 350,000 to 400,000 electric vehicles.

This surge in demand presents several challenges:

• Grid Stability: The existing infrastructure may struggle to accommodate the rapid increase in load, leading to potential reliability issues.
• Energy Supply: Utilities must explore new power generation options, which may include renewable energy sources, natural gas plants, or even the reactivation of decommissioned facilities.
• Environmental Concerns: Increased reliance on fossil fuels to meet immediate energy needs could hinder progress toward emission reduction goals.

Addressing the Challenges

To mitigate the impact of data center growth on the grid, states and utilities are implementing various strategies:

Infrastructure Investment

Utilities are investing heavily in grid enhancements to bolster capacity and resilience. For instance, CenterPoint Energy, an electric and gas utility company headquartered in Houston, Texas, and serving residents across seven states, has increased its capital expenditure plan by $500 million to strengthen its electricity grid, addressing the rising power demand from new data centers. The company anticipates a 50% growth in demand by 2031 and has adjusted its ten-year capital plan through 2030 to $47.5 billion to enhance grid resilience.

Diversifying Energy Sources

To meet the escalating energy demands, some utilities are turning to natural gas as a reliable power source. NRG Energy, for example, has announced plans to build four new natural gas power plants, producing a total of 5.4 GW, primarily to supply electricity to data centers in Texas and other locations. The first 1.2 GW is expected to begin operations in 2029. While this approach addresses immediate needs, it raises concerns about long-term environmental impacts and the alignment with climate goals.

Policy and Regulatory Measures

States are enacting policies to ensure that the costs associated with increased energy demand do not disproportionately affect residential consumers. For example, Ohio and Georgia, two states that are seeing major growth in data center projects, have decided to shift the financial burden of grid enhancements to large-load customers, i.e., the data centers. Similarly, other states are developing regulatory frameworks that strike a balance between economic development, consumer protection, and environmental sustainability.

Who Bears the Cost?

The rapid expansion of data centers necessitates significant investments in infrastructure and energy generation. The question of who bears these costs is multifaceted, and how various jurisdictions will resolve the matter remains to be determined:

• Businesses: Data center operators often invest in dedicated energy solutions, including on-site power generation or direct agreements with utilities for additional capacity. However, these costs are typically passed down to customers using cloud services and AI-driven applications.
• Taxpayers and Ratepayers: In states where utilities finance grid upgrades through rate increases, residential and small business customers may see higher electricity bills. Ohio and Virginia, for instance, have faced pushback from consumers over rising costs linked to data center growth.
• Legislative and Regulatory Bodies: Governments are considering policy interventions to ensure a fair distribution of costs. In some cases, eminent domain laws may be used to acquire land for new power infrastructure, raising concerns about property rights and the impact on the community. This has already happened in a handful of cases, to mixed results.

The Virginia Dominion Power, for example, attempted to utilize eminent domain to acquire private property for building power lines to support an Amazon data center in Northern Virginia. After substantial public pushback, the power company eventually decided to build an underground transmission system instead.

The town of Niagara Falls, New York, has an ongoing legal battle involving data centers and eminent domain. However, in this case, the mayor is using eminent domain to prevent a data center from acquiring more land. The mayor, instead, wants the parcel to be used for building an arena and a public park.

Elsewhere, in Maryland, lawmakers are proposing a bill that would make it harder for data centers to employ eminent domain. The new bill, called the “Protect Maryland Farm Lands Act,” would add a 350% premium to the highest appraised value for any land taken by eminent domain. The new bill is being proposed in the wake of reports of data centers looking to build in rural Maryland.

The Future of Data Centers and the Grid

As data centers continue to reshape the energy landscape, their impact on the power grid—and the cost of electricity—will remain a crucial issue for both businesses and consumers. Whether you’re a homeowner looking to manage your monthly energy bills or a business seeking cost-effective power solutions, staying informed about energy trends and market shifts is essential. ElectricityRates.com makes it easy to compare electricity plans, find the most affordable rates, and stay informed about critical energy-related news.