Rising data demand puts pressure on US energy grid, boosts gas projects / Rystad Energy

The US power sector is undergoing a significant transformation this year, with electricity consumption projected to exceed 4,200 terawatt-hours (TWh) for the first time. Although just a 2% increase from 2024, this is a sign of things to come, highlighting the evolving power landscape driven by surging demand from data centers and a shifting energy mix integrating traditional and renewable sources.

Data centers are at the heart of this transformation, with capacity standing at 22 gigawatts (GW) at the end of 2023, representing nearly 40% of global demand. Looking ahead, an additional 60 GW of capacity is anticipated in the US by 2035 based on announced projects, with power use from these facilities expected to rise from 130 TWh in 2023 to up to 450 TWh. The US is capitalizing on low-cost energy, tax incentives and robust fiber-optic infrastructure to lead the global market for data center developments, with Virginia and Texas attracting significant investments. Virginia’s so-called ‘Data Center Alley’ benefits from its advanced infrastructure and tax incentives, while Texas offers favorable grid policies and abundant renewable energy resources.

As the US power sector navigates this pivotal moment, strategic investments in grid infrastructure are required, along with a balanced reliance on various energy sources and the expansion of energy storage capabilities. How these elements are managed will ultimately define the future trajectory of the US power sector in the decades to come.

“The US power sector is entering a critical growth phase. Meeting the demands of data centers while balancing investments in natural gas and renewables will shape the industry’s path forward. Without targeted action, rising costs and energy shortages could pose significant challenges for both consumers and industry,” says Artem Abramov, Head of New Energies Research at Rystad Energy.

As demand grows, natural gas has regained prominence as a reliable energy source, with utility companies planning 17.5 GW of new capacity in the coming years—the highest level of project activity since 2017. This resource plays a key role in ensuring the reliability needed for energy intensive data centers. Projects such as Entergy’s new facilities in Texas, Louisiana and Mississippi underscore this trend. Yet, the sector faces hurdles, particularly with aging transmission infrastructure struggling to support growing demand and integrate new projects.

On January 14, 2025, President Joe Biden issued an executive order to alleviate certain bottlenecks and expedite data center and clean power infrastructure permitting and buildout on federal land. The order requires the Secretary of Defense and Secretary of Energy to each identify at least three federal sites by February 28, 2025, where data centers and associated clean power facilities can be built. Our early assessment suggests that there is strong bipartisan support for the general concept of making federal land more accessible to the growth-oriented data center sector. Having said that, strict clean power requirements that allow natural gas to qualify only with a carbon capture rate above 90% are unlikely to be popular with the incoming Donald Trump administration.

On the renewables front, it appears likely that the utility sector will experience a modest slowdown after a record-setting 2024 that saw 33 gigawatts alternating current (GW_AC) of new capacity of solar photovoltaic (PV) added, based on preliminary data. Growth is expected to plateau this year, with advanced-stage projects totaling 33.5 GW_AC. However, energy storage continues to thrive. Battery installations surged 50% in 2024, reaching 32.5 gigawatt-hours (GWh), and are forecast to grow another 35% this year, driven by larger and more standardized systems.

For consumers, these developments come with financial implications. Residential electricity prices averaged $165 per megawatt-hour (MWh) last year, a 25% rise from 2020. Elevated transmission and distribution costs, despite declining wholesale natural gas prices, are expected to keep electricity bills high for the foreseeable future.