📉 Data centers have lowered Americans' electricity bills

• A study shows that data centers have lowered average electricity prices for American households between 2015 and 2024.
• In states where data center capacity grew by 160 percent, household electricity prices fell by 6 percent.
• The reason is that the power system's large fixed costs are spread across more kilowatt-hours when demand rises.

Many Americans worry that data centers will drive up their electricity bills. About 70 percent say they oppose data centers being built near them.

A study from researchers at the Electric Power Research Institute points in the opposite direction.

The researchers examined the relationship between data centers and electricity prices in the United States between 2015 and 2024. They find that data centers have lowered average electricity prices for households during the period.

Prices fell despite rising demand

For every 10 percent increase in data center capacity, average household electricity prices fell by about 0.4 percent. Between 2019 and 2024, the average household customer lived in a state where data center capacity grew by 160 percent. That lowered their electricity price by 6 percent. In the researchers' main model, a doubling of data center capacity produced 3.5 percent lower electricity prices for households, with household demand held constant.

To separate cause from random correlation, the researchers used a method based on the American interstate highway system from 1947. Fiber-optic cables often follow the highways, and data centers are built where there is fast access to fiber. In this way, the researchers could measure the data centers' own effect on prices.

Virginia has the most data centers in the United States. There they account for over 20 percent of electricity use. Despite that, electricity prices in the state rose about as much as the average. In California, prices rose by nearly 40 percent, but that was mainly due to costs linked to wildfires. States where electricity use increased generally had smaller price increases than the average.

How the lower prices arise

How can higher demand produce lower prices? The power system differs from other markets. The electricity price for customers is based largely on average costs, not just on the cost of the last unit produced. The system has high fixed costs.

When demand rises durably, the fixed costs are spread across more kilowatt-hours. The average cost per kilowatt-hour then falls. New electricity generation also often costs less than the older kind, because the technology has become cheaper. The researchers see the same pattern in the costs of transmitting and distributing electricity. Larger volumes give a lower cost per unit.

Households benefited most

The price-lowering effect mainly went to households. For commercial customers and industrial customers, the effect was considerably smaller. That suggests the efficiency gains in the power system mainly reached households.

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