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The Cost of Intelligence: Impacts of AI Data Centers on US Electricity Prices
Vishrut Rana, Christian Kaps, and Serguei Netessine
Working Paper (2026)
Abstract
The rapid expansion of data centers is creating large, geographically concentrated increases in electricity demand. Rising demand has shaped public opinion around fears of rising electricity prices and led to numerous bans on AI data center development in the US. In this paper, we empirically study how data center entry affects electricity prices. We link quarterly data center capacity additions data with local electricity price and utility sales data, and implement a single-anchor synthetic-control design with cumulative, repeated treatment to estimate the causal effect of data center growth on retail electricity prices. We find that the additional data centers built in the US between 2020 and 2025 increased their region's industrial electricity price by an average of 5.4 $/MWh, explaining 15% of the total observed increase in prices. Furthermore, we show that there are significant but small spillovers to residential consumers, increasing prices by an average of 1.7 $/MWh, which accounts for 4% of the observed increase since 2020. We then analyze which factors explain differences in price impacts and find that data center additions by Big Tech firms result in no discernible price increases, whereas co-location data centers do. Also, counterintuitively, utilities with previously higher infrastructure utilization and a history of serving large industrial customers have lower residential spillovers. Overall, our findings suggest that the prevailing discourse about data centers affecting electricity affordability is overstated, and that the average residential price effect is small and concentrated among co-location developers and specific utilities.