Electricity prices will keep rising on AI data center demand: Goldman

Families won’t be able to escape rising electricity prices anytime soon, as demand from AI data centers grows rapidly while power supply grows slowly, according to Goldman Sachs.

Electricity prices are expected to rise 6.9% annually in 2025, more than double the headline inflation rate of 2.9%, Goldman analysts told clients in a research note published Wednesday.

Analysts said prices will continue to rise through the end of the decade as data centers account for 40% of the growth in electricity demand. They said this would reduce disposable income, drive down consumer spending and slightly slow economic growth in the coming years.

Analysts said households will see electricity prices rise another 6% by 2027. They later said price inflation would slow to 3% in 2028 due to the decline in natural gas prices. According to Goldman, consumer spending growth will fall by 0.2% by 2027, and economic growth will slow by 0.1% as a result.

But the bank noted that the path of electricity prices will vary widely across the U.S., depending on different regional market structures and regulatory choices made.

“Income and spending drifts will likely be greater for lower-income households because electricity makes up a larger share of their spending,” Goldman analyst Manuel Abecasis said. he said. Households in areas with more data centers will also take a bigger hit, he said.

Goldman analysts said higher electricity prices would increase core inflation by 0.1% through 2027 and 0.05% in 2028 as businesses pass on higher costs to consumers.

The rapid growth of data centers is colliding with limited electricity supply, as regulatory hurdles and labor and material shortages make it difficult to build new power plants, analysts said.

They said the tight supply-demand balance would increase wholesale electricity prices, especially in California, the Midwest and the Mid-Atlantic. They said utilities will spend more on infrastructure to meet demand, and this will be passed on to consumers.

The AI ​​industry’s role in electricity price inflation has become a major political flashpoint ahead of midterm elections this November. Democrats Mikie Sherrill and Abigail Spanberger won elections for governor of New Jersey and Virginia, respectively, in 2025, in part by promising to get utility bills under control.

President Donald Trump has embraced the AI ​​industry as an engine of economic growth but increasingly sees electricity prices as a threat to the political fortunes of the Republican Party. Trump received a promise from Microsoft in January that it would not allow data centers to raise prices.

The White House also signed an agreement with several states last month that calls for tech companies to pay for new power plants on PJM Interconnection, the nation’s largest power grid.

Data centers are playing a particularly disruptive role in PJM’s market, which spans 13 states, primarily in the Mid-Atlantic and Midwest. The cost of securing power supplies at PJM has increased by $23 in recent years billion attributable to data centers, according to Watchdog Monitoring Analytics. These costs are passed on to consumers.

This amounts to a “tremendous transfer of wealth”, he told watchdog PJM. November letter.