Expert Spotlight

As data centers expand rapidly to support growing digital demand, questions have emerged about their impact on electricity prices and the broader power system. This interview features insights from Carolyn Berry, a Partner in Bates White’s Energy Practice who has extensive experience analyzing trends in electricity markets. She discusses whether data centers are driving higher electricity prices, the potential benefits these large users can bring to the grid, and how smart policies can balance innovation with consumer protection.

Q. There has been a lot of press coverage lately about high electricity bills being driven by growth in data centers. Are data centers driving up electricity prices?

A. There is definitely a perception in the general public that data centers are driving up electricity prices. But increases in electricity prices are being driven by numerous factors. For example, the US electricity system is aging; older generators and distribution lines need to be replaced. Investments also are needed to incorporate new technology into our systems and to make them more resilient to extreme weather events such as hurricanes, wildfires, and winter storms. The volatility of natural gas prices is a big driver of high electricity prices in states like Maine, Massachusetts, and Pennsylvania. Big changes in federal funding for various types of generation are creating uncertainty in the markets, which tends to reduce investments.

So, yes, data centers do require very large amounts of electricity to operate and thus they do put pressure on electricity prices, but that is just one of many factors pushing prices up. In the long run, the electric sector will be transformed through innovation and technological change to efficiently accommodate subsequent waves of increased demand from the electrification of transportation (cars, buses, trucks, ships, aviation), heating, manufacturing, and industrial processes, including the production of steel, chemicals, and cement.

Q. Can data centers and other very large electric customers such as advanced manufacturing benefit the electric sector?

A. Yes. As I mentioned, our electric system requires modernization and replacement. As big consumers, data center customers will contribute vast amounts of capital that can be used to address these needs.

The consumption profile of many large data center customers is relatively constant both day and night. This creates efficiencies in operations by increasing usage of otherwise underutilized assets such as generators that must operate overnight at low levels, and in planning; a more efficient set of resources can be deployed with more stable predictable demand.

Also, numerous big data center companies are leaders in innovation, developing new processes to operate and expand the grid. They are also investing heavily in cutting-edge technologies such as enhanced geothermal systems, long duration energy storage, and advanced nuclear generation. Their investment and participation will accelerate the development and adoption of these technologies, which either store energy from existing intermittent generation such as solar or generate clean energy that operates around the clock.

Q. Does the energy industry need rules to leverage these benefits and to protect smaller customers from adverse impacts on their electricity rates?

A. Yes. Many utilities across the country are instituting tariffs or other rules to ensure that data center customers pay their share of costs. These include provisions that require minimum contract lengths and bill commitments that lock in revenues to pay for investments made on their behalf.

The tariffs also include security guarantees and provisions to ensure grid reliability. Other provisions provide flexibility to data center customers that allow them to pursue their clean energy, efficiency, and timing goals. These include new contracting terms that allow for development or ownership of generation by data center customers, provision of services such as demand response, or investments in programs or utility processes that expand existing generation and transmission capacity.