The AI Power Crunch: What Companies Need to Know About Electricity Price Risk
For nearly two decades electricity demand in the United States followed a steady and predictable path. Moderate population growth, efficiency gains, and gradual fuel switching kept load growth manageable. Utilities, grid operators, and corporate energy teams planned around this stability, often with the assumption that natural gas prices would be the primary driver of energy cost volatility.
That stability is changing.
Rising AI demand is reshaping electricity demand
Investment in artificial intelligence and cloud infrastructure is significantly increasing electricity demand. The largest technology companies are scaling rapidly to support data-intensive applications which require energy-intensive computing infrastructure.
Analyst estimates suggest that annual spending on AI infrastructure could reach $600–700 billion in 2026, with total investment exceeding $1 trillion between 2025 and 2027.
At the same time, electricity demand from data centers is accelerating at an unprecedented pace. According to the International Energy Agency (IEA), global data center electricity consumption grew by approximately 17% in 2025, far outpacing overall electricity demand growth.
Looking ahead, the IEA projects that global data center demand could more than double by 2030 to roughly 945 TWh, a level comparable to the current electricity consumption of Japan.
In the United States, data centers are on track to become one of the largest sources of incremental demand, potentially consuming more electricity than all energy-intensive manufacturing sectors combined by the end of the decade.
While efficiency improvements are ongoing, particularly in AI workloads, total energy use continues to rise due to speed and scale of deployment.
The buildout is highly concentrated geographically
This demand growth is highly localized. Data center development is clustering in specific regions, creating localized pressure on electricity systems and prices.
Key hotspots include:
- PJM region: Northern Virginia remains the largest data center market in the world, with continued expansion into nearby states
- Texas (ERCOT): More than 230 gigawatts of large-load interconnection requests have been submitted, with over 70 percent linked to data centers
- Southeast and MISO regions: States such as Georgia, Tennessee, and the Carolinas are seeing rapid growth, though infrastructure readiness varies
Emerging data suggests a strong geographic relationship between data center growth and electricity price increases. A Bloomberg analysis found that a majority of grid nodes experiencing significant price increases since 2020 are located near major data center clusters, highlighting the localized impact of concentrated demand growth.
Similar patterns are emerging globally:
- Ireland has limited new data center connections in the Dublin region due to grid constraints
- Singapore paused new data center approvals for multiple years before reopening under stricter efficiency requirements
This reflects a broader challenge: balancing economic growth from AI infrastructure with grid reliability and cost impacts for existing users.
PJM offers an early signal of growing supply constraints
Capacity markets provide one of the clearest near-term indicators of tightening electricity supply and demand dynamics. PJM’s recent auction results illustrate how quickly the market is shifting.
- 2024 to 2025 delivery year: about $28.92 per megawatt-day
- 2025 to 2026 delivery year: about $269.92 per megawatt-day
- 2026 to 2027 delivery year: about $329.17 per megawatt-day, hitting the price cap
Total capacity market costs have risen accordingly, reaching around $16 billion per year.
This shift is driven by a combination of factors, including generator retirements, interconnection delays, and evolving reliability rules. However, rising electricity demand from data centers is widely recognized as a key driver.
Looking ahead, continued load growth combined with long development timelines for new generation and transmission suggests that tight market conditions could persist, particularly in regions experiencing concentrated demand growth.
Why this matters for corporate energy buyers
The companies developing AI infrastructure often have fundamentally different economics than traditional electricity consumers. For many, electricity is a critical input to revenue generation rather than simply a cost center. As a result, these users may be less sensitive to price volatility than traditional industrial or commercial customers.
This dynamic introduces a structural shift in how electricity markets respond to demand. Historically, higher prices have helped moderate demand and stabilize markets. However, as a growing share of demand becomes less price-sensitive, those balancing mechanisms may weaken.
For other grid participants — including manufacturers, real estate operators, healthcare systems, and consumer goods companies — this creates exposure to:
- Higher and more volatile wholesale prices
- Increased capacity costs
- Upward pressure on retail tariffs and contract renewals
Importantly, this exposure extends beyond wholesale buyers. Regulated utilities and retail markets ultimately pass through system costs over time through fuel adjustment mechanisms, rate cases, and contract repricing cycles.
A shifting risk profile for electricity costs
Companies face a more uneven risk landscape.
- Acting today (e.g., securing long-term contracts or hedges) comes with known and bounded costs
- Not acting increases exposure to prices in regions where demand growth outpaces supply additions
While outcomes will vary significantly by location, the underlying trend is clear: electricity markets are entering a period of renewed demand growth and tighter supply conditions, especially in regions with high data center development.
What to do next – How companies can manage electricity price risk
Companies with operations in high-growth regions should begin evaluating their exposure now and considering procurement strategies aligned with this evolving landscape.
Potential approaches may include:
- Long-term renewable power purchase agreements (PPAs)
- Onsite or behind-the-meter generation
- Portfolio diversification across markets and products
These strategies can help reduce price volatility and improve cost-certainty over time.
Upcoming PJM-specific PPA opportunity
We are launching a PJM-specific renewable energy procurement event this year. Due to AI load growth and data center build-out, organizations with meaningful electricity load in the PJM market are increasingly exposed to upward price pressure and supply/demand imbalances. Coupled with this risk is the evolving requirements for Scope 2 accounting being imposed by GHGP and SBTi.
To help our clients navigate this complexity, SE Advisory Services is hosting a PJM-focused PPA procurement event beginning this summer. Through robust stakeholder education, deep market analysis, and strategic sourcing, our team will equip qualified organizations with the data, resources, and support to execute PPAs and mitigate their exposure risk in PJM.-Those interested in learning more should register to join our upcoming webinar.
PJM & The Evolution of Electricity Markets: How Your Organization Can Leverage PPAs to Offset Price Risk
Thu, Jun 4, 2026, 11-11:45 AM EDT
The session will cover:
- Key drivers of volatility in PJM electricity markets
- How companies are using power purchase agreements to reduce risk
- Why early action matters in today’s market environment
- How to participate in the upcoming procurement initiative
Please contact Hans Royal or Mike Nolan with Renewable Energy & Carbon Advisory, SE Advisory Services to better understand how these dynamics may affect your operations or to evaluate potential mitigation strategies.
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