Why your electric bill is so high now: Blame AI data centers

If you've recently noticed that your electric bill is higher than normal, you're not alone. Electricity is becoming more expensive everywhere, and faster than inflation. A main culprit? The flood of new data centers are being built to meet demand from the AI ​​sector.

To find out more, I asked my colleague Umair Irfan, who covers energy policy, for the daily Vox newsletter “Today, Explained”. Our conversation can be found below. You can sign up for the newsletter Here for further discussions of this kind.

What's going on with energy prices lately?

Electricity prices have risen quite dramatically over the last year. In some places they are rising by double digits and are expected to rise even further. We're talking about prices paid by consumers, and that's actually reflected on people's electricity bills, which is why it's getting a lot of attention.

There are several reasons for this. On the one hand, electricity prices were kept artificially low during the Covid-19 pandemic because the electricity industry is highly regulated. Many regulators were under public pressure to stop utilities from raising prices as we were already struggling with inflation and other cost of living issues. Some of these restrictions have now been lifted and we are experiencing a recovery.

In addition, all electricity feed-in has become significantly more expensive. Material costs are rising in general, and the Trump administration's tariffs on things like steel and aluminum are making it harder to get the hardware for things like building power lines or even replacing existing power lines. Coal and natural gas fuel prices are quite volatile, and natural gas prices have been rising. Natural gas is the primary way we produce electricity here in the United States.

We're also seeing a pretty big increase in overall energy demand for the first time in a long time. For over 20 years we have observed that efficiency counteracts the increase in energy demand, so our overall energy demand has remained relatively stable. Just in the last few years, we have seen a sharp increase in electricity consumption, and this is due to the increasing proliferation of data centers, particularly those that power the AI ​​industry.

You have a big story out about how these data centers contribute to price increases, in some cases even when they are not yet built. What's happening there?

Just last week, the public advocate for the state of Maryland sent a letter to the region's grid operator telling him that he really needs to curb energy speculation because it's causing people's prices to start rising.

The way it works is that to build a data center you have to procure a certain amount of power to ensure that you can actually keep it running. So what you see is these tech companies go to different utility companies, look around and ask them: What price can you tell me for this amount of electricity? And how soon?

It turns out that in some cases these tech companies buy from multiple utilities and those utilities in turn tell the grid operator: Hey, that's how much electricity we're going to need in the next few years. The concern is that they're double counting because these tech companies are reaching out to multiple utilities and multiple jurisdictions and telling them they're going to need this much power, and right now they're just window shopping, but the utilities are treating these as real offers.

Additionally, we are not entirely sure that many of these data centers will be built. There are some pretty wild estimates about how many more data centers we will need. It is not clear whether the current trends we are seeing will continue.

That just means you're going to be building a lot of infrastructure to support data centers that may not have enough demand to actually fund that infrastructure. And that ultimately means that the average customer comes out on top in the end.

This is in Maryland, but the carrier covers much of the East Coast. We have two big gubernatorial elections coming up in Virginia and New Jersey. Will this come up in the election campaign?

It's definitely become a big issue in the New Jersey governor's race. Both sides blame the other party's policies for rising energy prices. The Republican in the race blames renewable energy for driving up the cost of electricity, and the Democrat blames the Trump administration for eliminating numerous incentives to add more renewable energy to the grid and the infrastructure to support them. Renewable energy is currently the cheapest and fastest way to add electricity to the grid, and by taking it off the table you are taking advantage of one of the cheapest and easiest ways to bring more electricity to the market.

Virginia also has one of the largest concentrations of data centers in the world. Loudoun County, just outside of DC, has what is known as Datacenter Alley, through which much of the Internet traffic flows. It also hosts the largest concentration of hyperscale data centers supporting AI technologies. This is a very large, energy-hungry sector that contributes to the local economy, but also requires a lot of water and a lot of electricity, and now there are setbacks. Many customers in Virginia and neighboring states such as West Virginia have begun protesting against data centers because they are concerned about the electricity prices and other environmental costs they incur.

What can consumers expect from electricity prices in the future?

In the short term, electricity prices are likely to continue to rise. It doesn't seem to be an easy way out, as the same factors that are driving up electricity prices are still present.

However, it is important to remember that electricity is a subset of energy expenditure. When you look at the big picture of the energy industry, it's likely that consumers will actually save money on household energy over time, and that's because we're switching from fossil fuels to electricity. The biggest contributor to this is the switch from gasoline cars to electric cars: the more electric cars are connected to the grid, the more electricity they use, but electric cars are more efficient than gasoline cars, so the total energy consumption per household will eventually decrease. We'll see this with other appliances like ovens and ovens as we switch to electricity. Electricity consumption will increase, but the overall energy footprint will decrease. And we can expect that people will actually start saving money in the medium and long term if these trends continue.