Here’s how AI data centers affect the electrical grid

By Auzinea Bacon, CNN

(CNN) — Tech giants are in a heated race to build data centers and dominate the AI landscape. But America might not be ready for the energy demand.

The country’s aging electrical grid could struggle to keep up with the surge in energy needs. And US households are largely footing the bill for additional costs.

The Trump administration and a consortium of governors from northeastern states are asking PJM, America’s largest electric grid operator, to ease the nationwide spike in electricity costs. Federal officials want PJM to hold an emergency power auction — which the White House and governors cannot mandate — with tech giants that would pay for the surging costs from their data centers. (PJM said it was not given advance notice of the plan.)

Here’s what you need to know about the data center boom.

Where are data centers built?

Virginia has the biggest data center cluster in the entire world. It currently has 561 data centers in 23 markets, according to Data Center Map, which has tracked data centers since 2007.

Developments are also expanding to remote locations, where energy is more abundant and grids are less strained, according to McKinsey & Company’s August data center report. Data centers are expected to pop up in Denver, Los Angeles and Pennsylvania, among other regions.

Some states are incentivizing these investments. Ohio, for instance, offered partial or full sales tax exemptions for companies making significant investments, McKinsey noted.

Which companies are leading the charge?

America’s tech giants are racing to be at the forefront of the AI boom. Meta said it spent $17 billion in capital expenditures — which typically refers to money spent on data centers and infrastructure — for the quarter ending in June 2025.

Microsoft said it spent $24.2 billion for the quarter that ended last June, while Amazon said it would invest $15 billion in Northern Indiana to build new data center campuses, in addition to an $11 billion investment announced in 2024. And Bank of America in September estimated that companies’ annual spending on data center construction hit $40 billion in June.

Are they making electric bills more expensive?

Residential electricity rates were up 5.2% in October from the same time in 2024, according to the monthly electricity report released by the Energy Information Administration. Electricity costs for areas near data centers increased by as much as 267% compared to five years ago, a Bloomberg News analysis found last year.

The increase is due in part to the data center boom, which is boosting demand and straining resources, noted Ryan Hledik, a principal at the research and consulting firm Brattle Group.

But there are exceptions: Prices could drop if a data center is built in an area that has spare capacity or if it operates outside of peak usage hours, he noted.

America’s aging electrical infrastructure also isn’t helping costs. Most rate increases over the last decade can be attributed to America’s distribution system, he explained.

The distribution system requires more expensive investments because of increased costs following the pandemic supply shock, Hledik said.

Will data centers keep eating up energy?

Data centers are projected to consume about 6.7% to 12% of US electricity in 2028, up from 4.4% in 2023, according to a December 2024 report from the Department of Energy.

Some utilities companies are already stepping in to prevent data center demand from affecting residents, Hledik noted, by introducing new rates for large customers.

States are also stepping in. Oregon passed a bill requiring data centers to “pay for the actual strain they place on Oregon’s electrical grid.”

And Microsoft recently said it would ask to pay higher electricity bills in areas where it builds data centers.

How do data centers affect the water supply?

Data centers also need significant amounts of water to cool their complex systems, according to McKinsey’s report.

These facilities are expected to need 170% more water by 2030, McKinsey noted, citing a report from WestWater Research. And facilities like thermal plants that are used to support data centers also need water for cooling.

It feeds into the larger question about whether data centers and American families can coexist in harmony, Hledik said.

“How do we create the conditions so that everyone is a winner in this situation, and not a case where you have some winners and then the local community,” he said.

The-CNN-Wire
™ & © 2026 Cable News Network, Inc., a Warner Bros. Discovery Company. All rights reserved.

CNN’s Ella Nilsen, Lisa Eadicicco and Clare Duffy contributed to this report.