Amid rising demand for data centers and computing power for artificial intelligence (AI), cloud storage, and crypto assets, analysts predict a significant rise in electricity demand, potentially overloading the US grid. A new report from The Conference Board, “Smart Power: Will AI Spike Electricity Demand or Reduce It Through Efficiencies?” provides an in-depth analysis of this issue, offering strategic insights for managing potential grid strain and harnessing AI efficiencies.
Alex Heil, Senior Economist at The Conference Board, emphasizes that the rise of AI and data centers presents both opportunities and challenges for the energy sector. AI can drive efficiencies in electricity use, but the increased demand from data centers could strain existing infrastructure. Businesses must manage their power demand effectively, while policymakers need to address grid constraints to ensure a reliable, sustainable energy future.
The report highlights that power demand from data centers is projected to significantly increase. Analysts project that this demand could more than double over the next decade, placing significant pressure on the existing electricity grid and potentially creating outages and reliability issues. Since 2021, approximately $500 billion of investment in industrial and manufacturing facilities has substantially upgraded forecasts for overall US power usage. Nationwide, electricity demand is now expected to grow 4.7% over the next five years, nearly double the previous estimates of 2.6%.
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Despite previous predictions, dramatic increases in energy demand did not materialize as expected. Over the past two decades, electricity demand has remained relatively stagnant despite dramatic smartphone and internet usage increases. In 2007, the Environmental Protection Agency (EPA) estimated that energy consumption in the US by data centers and related technologies would double between 2005 and 2010, but the actual increase was only 36%. Advances in energy efficiency, such as LED lighting and technological improvements, along with the decline in demand due to the 2008-2009 recession, helped mitigate the predicted spikes in energy demand.
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AI will seriously tax utilities and the grid in the decade ahead but also has the potential to unlock significant efficiencies in electricity use. Current-generation AI models like ChatGPT now use over 500,000 kWh daily, compared to 29 kWh for the average US household. AI’s computational power is projected to double every 100 days, increasing global energy demand attributed to AI by 26% to 36% annually in the coming years. Implementing AI to manage electricity usage, for instance, by shifting the most taxing tasks to off-peak hours, can result in efficiency savings, reducing costs, and enhancing the capacity of energy systems. If the added computational power of AI allows businesses to achieve greater efficiencies and utilities to operate more effectively, the increase in power demand due to AI could be lower than projected, supporting climate goals.
The US energy grid and water resources face significant challenges due to increased demand. More than 8,000 data centers are in operation globally, with approximately one-third located in the US, driving significant demand for water and critical infrastructure components. Data centers are estimated to use between 1 million and 5 million gallons of water per day, equivalent to the daily demand of 10,000 to 50,000 residents. Long-term planning is critical, and the Federal Regulatory Energy Commission’s Order No. 1920 now requires transmission operators to plan for future demand, addressing capacity needs over the next 20 years. Additionally, a shortage of transformers, a critical component of grid infrastructure, continues to create constraints within US energy markets, exacerbated by the increased demand from data centers and AI technologies.
The rise of AI and data centers necessitates strategically managing electricity demand and grid resources. By leveraging AI’s potential for efficiency and addressing infrastructure challenges, the energy sector can navigate the complexities of increased power usage and ensure a sustainable future.
