Big tech companies are building data centers and competing fiercely to dominate the AI world. But the United States may not be ready to meet energy demands.
The country’s electricity grid is aging and could struggle to cope with surges in energy demand. And most of the additional costs are borne by American households.
The Trump administration and a coalition of northeastern state governors are calling on PJM, the nation’s largest power grid operator, to ease the soaring electricity prices nationwide. Federal officials want PJM to hold an emergency power auction (which cannot be mandated by the White House or governors) with tech giants who would help pay for the data center’s soaring costs. (PJM said it was not notified of the plan in advance.)
Here’s what you need to know about the data center boom.
Virginia is home to the largest data center cluster in the entire world. The company currently has 561 data centers in 23 markets, according to Data Center Map, which has tracked data centers since 2007.
According to McKinsey & Company’s August Data Center Report, development is expanding to remote areas where energy is abundant and the grid is less strained. Data centers are expected to open in areas such as Denver, Los Angeles and Pennsylvania.
Some states encourage such investments. For example, McKinsey noted that Ohio offers partial or full sales tax exemptions to companies that make significant investments.
US tech giants are racing to be at the forefront of the AI boom. Meta said it spent $17 billion on capital expenditures (which typically refers to funds spent on data centers and infrastructure) in the quarter ending June 2025.
Microsoft said it spent $24.2 billion in the quarter that ended last June, while Amazon said it would invest $15 billion to build a new data center campus in northern Indiana, on top of an $11 billion investment announced for 2024. And Bank of America estimated in September that annual corporate spending on building data centers will reach $40 billion in June.
According to the monthly electricity report released by the Energy Information Administration, residential electricity prices rose 5.2% in October compared to the same period in 2024. A Bloomberg News analysis last year found that electricity costs in areas near data centers increased by 267% compared to five years ago.
Ryan Fredik, principal at research and consulting firm Brattle Group, said the increase is due in part to increased demand and resource pressure from the data center boom.
However, there are exceptions and prices may fall If the data center is built in an area with excess capacity or operates during off-peak usage hours, he noted.
America’s aging power infrastructure is also not helping costs. Most of the interest rate increases over the past decade can be attributed to the U.S. rationing system, he explained.
Fredik said distribution systems will require higher investments due to increased costs after the supply shock caused by the pandemic.
Data centers are projected to consume about 6.7% to 12% of U.S. electricity in 2028, up from 4.4% in 2023, according to a December 2024 report from the Department of Energy.
Fredik noted that some utility companies have already stepped in to prevent data center demand from impacting residents by introducing new rates for large customers.
States are also intervening. Oregon passed a bill requiring data centers to “pay for their actual burden on Oregon’s power grid.”
And Microsoft recently announced that it would require regions where it builds data centers to pay higher electricity rates.
According to the McKinsey report, data centers also require large amounts of water to cool their complex systems.
McKinsey cited a report from Westwater Research, noting that these facilities are expected to need 170% more water by 2030. Facilities such as thermal power plants used to support data centers also require water for cooling.
This impacts the larger question of whether data centers and American families can coexist harmoniously, Fredik said.
“How do we create conditions in this situation where everyone wins, rather than a situation where there are some winners and then the local community wins?” he said.
