AI data center–driven electricity price hikes are ‘here to stay’

00:00 Josh

Look at those high electricity prices, Dave. Do you look at this and say, okay, is this cyclical, no, this is something, this is something more structural? These high prices are here to stay.

00:10 Dave

Josh, thanks for having me and that’s a great question. So I think these high prices are here to stay, at least in the near term.

00:21 Dave

We have seen a rise in electricity prices across the US, driven in part by the impact of AI and data centres, but there are a number of other factors as well; Capital costs of newly constructed power plants are increasing. We have seen some aging infrastructures decommissioned. We have additional transmission and distribution lines that need to be renewed. And all that being said, weather conditions in any given year can be a really important factor in what overall energy prices will be. However, I think we are in a period where prices are generally rising.

00:54 Josh

So, if electricity prices are here to stay, Dave, and if they’re going to continue to rise everywhere in the United States, how far do you think they can go, Dave?

01:08 Dave

This is another great question. So there are several factors at play. So some markets have price caps that limit how high prices can go. However, the political appetite for pricing at these upper levels is indeed strained at best. And so we’re seeing a number of different system operators, policymakers, regulators across the country trying to change the rules; this happens all the time to help really focus and focus on affordability in these competitive markets. Um, I think we’re going to see some evolution in market rules. But in general, prices at any given time can go up to the price ceiling in any market.

01:52 Josh

Dave, is there anyone out there who has thought hard about this? So is there a solution or solutions that will help alleviate the cost shock for consumers?

02:05 Dave

So there are many different potential solutions. There’s no magic solution, right? If it was easy we would already be doing it. One of the most interesting things we’ve seen in the last 12 months is PJM, the grid operator from the University of Chicago to New Jersey. It covers 13 different states. at least parts of 13 different states. It is the world’s largest wholesale energy market. For electricity.

02:22 Dave

They’ve implemented what they call the critical issue fast track, which is really a stakeholder process that tries to accelerate the innovation of new ideas to, one, reduce the cost to consumers, two, bring new energy generation into the system more quickly, and three, provide a much more reliable grid.

02:40 Dave

Typically in these processes, a standard process, it takes 12 to 18 months to start working on the regulatory pathway. Sometimes it can take years to see change. And what they’re trying to do on the fast track with this critical problem is put a bunch of ideas on the table, debate about them, figure out what might work and what might not, and actually move forward with some of those solutions. So some of this hasn’t been seen yet, but we’re seeing a lot of interest in demand response.

02:59 Dave

So, for example, if data centers don’t need to have enough capacity to support them, a power plant supporting them will try to turn on the light switch when needed. Demand response essentially allows the system operator to shut them down during periods of really high grid stress.