Soaring Energy Costs

The rapid growth of data centers is driving up natural gas power plant costs, with a 66% surge in just two years. The increased demand for electricity is also taking longer to build, with construction times 23% longer than before. This trend is largely driven by the insatiable appetite for data center electricity, which is expected to continue growing sharply in the coming years.

The numbers are staggering. A recent McKinsey report projected roughly $2.8 trillion in spending on data center infrastructure in the US by 2030. In 2024, data centers used roughly 4–5% of the electricity produced in the United States—a percentage projected to grow sharply in the years ahead. As data centers continue to proliferate, the strain on energy grids and water supplies is becoming increasingly evident.

Data Center Growth: A Broader Industry Context

The data center industry is growing at an unprecedented rate, driven by the increasing demand for cloud computing, artificial intelligence, and big data analytics. Adjacent products, such as edge computing and IoT devices, are also experiencing rapid growth, further straining energy grids and water supplies. In 2025, the global data center market size was estimated to be around $240 billion, with a projected growth rate of 15% per annum. Competing companies, such as Google and Microsoft, are also racing to build out their data center infrastructure, further exacerbating the strain on local resources.

A History of Data Center Growth

The growth of data centers is not a new phenomenon. In the early 2000s, data centers began to proliferate in the US, driven by the increasing demand for e-commerce and online services. However, it wasn’t until the mid-2010s that data centers began to experience rapid growth, driven by the increasing adoption of cloud computing and big data analytics. Prior launches, such as the launch of Amazon Web Services (AWS) in 2006, set the stage for the current data center boom. Precedent regulatory actions, such as the 2010 Dodd-Frank Act, also played a role in shaping the current regulatory landscape.

Technical Mechanics: How Data Centers Work

Data centers are complex systems that require a significant amount of energy to operate. The typical data center consists of thousands of computer servers, storage systems, and networking equipment, all housed in a large facility. The energy demand for data centers is driven by the need to power these servers, as well as the need for cooling systems to keep them at a safe operating temperature. In 2024, data centers accounted for around 4% of the total energy consumption in the US, with the majority of that energy used for cooling purposes.

Downstream Implications: Who Benefits, Who is Squeezed?

The growth of data centers has significant downstream implications for local communities. While data centers can provide jobs and economic growth, they can also strain local resources, such as energy grids and water supplies. In some cases, data centers can even displace local businesses and residents, as seen in the case of Project Blue in Tucson, Arizona. The decision to build a data center in a particular location is often made with little consideration for the local community, leading to concerns about gentrification and displacement.

State-level Action: Regulating the Data Center Industry

State policymakers are taking notice of the impact of data centers on energy grids and water supplies. In 2025, more than 190 bills on data centers were introduced in state legislatures, roughly nine times the number of such bills introduced in 2024. Many of these bills address economic development, ratepayer protection, grid reliability, and disclosure of data centers’ energy use and environmental impacts. While some bills have been enacted into law, many more are still pending, and it remains to be seen how effective they will be in mitigating the impact of data centers on local resources.

What’s Next: Sustainable Solutions for Data Centers

As the demand for data center electricity continues to grow, it is essential to develop more sustainable solutions to meet this demand. This may involve the development of new technologies, such as more efficient cooling systems or renewable energy sources. It may also involve greater investment in grid infrastructure, to ensure that data centers can be powered reliably and efficiently. Whatever the solution, it is clear that the growth of data centers is not going to slow down anytime soon, and it is up to policymakers, industry leaders, and residents to work together to ensure that this growth is sustainable and responsible.

The next critical decision will be how state regulators respond to the growing demand for data center electricity. Will they prioritize economic development and allow data centers to proliferate, or will they take a more cautious approach and prioritize the protection of local resources? The answer will have significant implications for the future of the data center industry and the communities that host them.

Updates

• 2026-05-12 — The Creators of ‘Hacks’ Really, Really, Really Hate AI (source)