From the introduction of electric lighting to the spread of personal computers, electricity demand in the United States grew almost continuously as it became increasingly integral to society and the economy. Around 2005, however, demand slowed, leading to stagnant load growth through the 2010s.
That era of stability is now over. In 2024, the national five-year forecast for electricity load was 5 times higher than 2022 predictions. Peak electricity demand is expected to increase by 128 gigawatts (GW) by 2029 — roughly 13 times the amount of electricity New York City consumed at its peak demand in 2023.
These latest load forecasts caught many by surprise and are creating turbulence across the energy sector. Electricity prices are already spiking. Utilities rushing to meet new demand are pushing to build more firm generation, including retaining — or even expanding — their fossil-fueled power plants. What’s more, new demand could put additional strain on an aging electricity grid that is overdue for upgrades and expansion.
State and federal energy regulators, as well as utilities and the federal government broadly, will be critical actors in addressing this new challenge, and they are actively pursuing solutions. Yet state and local policymakers can also play key roles — namely, by protecting their constituents from cost increases and addressing new sources of demand within their jurisdictions.
Here, we discuss some of the pathways available to state and local policymakers as they grapple with the challenges associated with rising electricity demand.
What’s Driving Increased Energy Demand in the US?
There are many drivers of increased electricity demand in the U.S. One of the largest is data centers. One analysis estimates they could account for 44% of all U.S. load growth between 2023 and 2028. Thanks to increased demand for cloud services and the rise of complex artificial intelligence (AI) applications, private data center construction spending in the U.S. has surged to almost $30 billion a year, about double the spending in late 2022 when ChatGPT first came online. Since January 2023, over 50 GW of new data center capacity have been announced.
And data center construction is unlikely to slow anytime soon: Across the globe, capital expenditures for data centers are expected to exceed $1.1 trillion by 2029. A Lawrence Berkeley National Laboratory study predicted that data centers could account for 6.7%-12% of total U.S. energy consumption by 2028.
It’s not all ChatGPT and cat videos, however. A revitalized American manufacturing sector, spurred by the passage of the Inflation Reduction Act and the CHIPS and Science Act, has doubled real investment in manufacturing since 2021. Companies are now investing in new facilities to produce electronics, computer chips, electric vehicles, solar panels and more — all of which require large amounts of electricity to operate. Other heavy industries are also expanding: As of May 2024, companies have announced 3.8 GW of planned electrolytic hydrogen production facilities.
Electric vehicle (EV) adoption and building electrification are also driving new energy demand. Automakers sold a record 1.3 million EVs in the U.S. in 2024, accounting for around 8.7% of new cars sold. By 2030, EVs are projected to represent up to 46% of light-duty vehicle sales, requiring over 42.2 million charging points across the country.
Building electrification is also expanding, as improved performance and rebates nudge households toward electric appliances like electric water heaters and heat pumps. Overall, the residential sector is expected to see a gradual but steady 10% increase in electricity demand by the end of the decade.
The extent of load growth associated with each of these drivers varies by region. Large data center markets such as Silicon Valley, the Dallas/Fort Worth area, Phoenix, Chicago, and, in particular, northern Virginia are expected to be at the forefront of new data center expansion. Meanwhile, manufacturing investments are most concentrated in the Southeast and Midwest, including in Georgia, Tennessee, the Carolinas, Ohio and Michigan. And places like California, New York and New England are beginning to see electrification play a major role in increasing peak demand.
What Are the Impacts of Increased Electricity Demand?
Surging electricity demand is expected to have tremendous impacts on the U.S energy system, the country’s ability to fight climate change, and on electricity service and prices for households across the country. Some of these effects are already being felt: For example, multiple major technology companies are reporting increases in their greenhouse gas (GHG) emissions due to extensive data center development.
As companies and utilities race to build the infrastructure that can meet future demand, there is pressure to meet new loads with clean generation. Because of their sustainability commitments, many tech companies are investing in solar and storage, as well as new sources of clean, firm energy like nuclear and geothermal. In September 2024, Constellation Energy announced that it would restart one of the reactors at Pennsylvania’s Three Mile Island nuclear plant as part of a power purchase agreement with Microsoft to support the company’s data center operations. Other companies have explored “co-location” models, in which a data center is built on-site with new or existing generation.
Some utilities and companies, however, are looking to retain or even build new fossil fuel generation to meet demand. Cloud computing startup CoreWeave, for instance, recently announced that its new Kenilworth, New Jersey data center would be powered by an existing on-site 25 MW gas-fired power plant. In Nebraska, the arrival of new data centers led the Omaha Public Power District to delay retirement of two coal-burning generators next to a disadvantaged community. On a wider scale, between December 2023 and July 2024, utilities across the country revised their Integrated Resource Plans to add 20 GW of new gas capacity and delay retirement of 3 GW of coal plants by 2035, likely driven by new demand sources. Together, this greater use of existing fossil fuel resources, as well as new development of natural gas plants, could increase power sector GHG emissions and air pollutants after years of progress.
Greater demand could also translate into higher energy bills for consumers. One report from global consulting company ICF estimates that increased demand will likely drive electricity prices almost 20% higher by 2028, with regions like Texas and New England potentially seeing even larger increases. Already, load growth is leading utilities to pass costs on to customers. Dominion Energy, which serves northern Virginia, the world’s largest data center market, recently estimated that its residential customers would see a 50% increase in their electricity bills by 2039 to support the buildout of new generation facilities. These prices may go up even further, as the U.S. Energy Information Administration predicts the price of natural gas to increase by over 20% in the next few years.
Large load demand can also present an economic threat to the electricity system by creating “stranded” costs and assets. Utilities must build new distribution, transmission, and, depending on the area, generation infrastructure to serve new demand. They rely on stable estimates of power demand to plan their spending on these large, capital-intensive projects. However, efficiency gains and market volatility in the industries driving new large electricity loads, particularly among data centers, mean that there is significant uncertainty about the extent of future growth in energy demand. This means that utilities could be at risk of overbuilding for demand that never materializes, leaving other utility customers with the costs for unused or underutilized “stranded” assets.
Finally, greater demand could pose a threat to grid reliability by adding stress to an already overtaxed electricity system. The U.S. power grid is aging: Over 70% of the country’s transmission lines are more than 25 years old, with many approaching the end of their 50- to 80-year lifespans. Furthermore, extreme weather exacerbated by climate change is leading to more frequent weather-related power outages. This is especially worrisome considering new data center demand, since data centers operate with requirements for high levels of server “uptime” above 99%. While some projects are exploring how data center loads can become more flexible and put less stress on the grid during times of high demand, they are still in their early stages.
How Can We Address New Demand for Electricity in the US?
This new reality of increased load growth presents challenges for policymakers. The biggest drivers of heightened demand — data centers, manufacturing and electrification — all represent major opportunities for economic development in communities across the U.S. Yet increased load threatens to slow down progress in fighting climate change and reducing air pollution, burden consumers with higher electric bills, and further stress an already over-taxed grid.
At the federal level, the new Trump administration has put its full support behind encouraging new data centers and producing significantly more oil and gas to meet energy demands. At a state and local level, policymakers must strike a delicate balance between economic development interests and commitments to energy affordability, reliability, public health and emissions reductions.
A few key tools can help them effectively manage electricity load growth in their jurisdictions:
Manage Sources of Electricity Demand Directly
The most direct avenue for tackling energy demand issues is to look to the sources of load growth themselves. That means directly mitigating the impacts of data centers, new manufacturing, and building and transportation electrification.
Economic development policies can help regulate new sources of demand. Many states, for instance, attract data center investment using favorable sales and property tax breaks. Policymakers could ty these tax breaks or other economic incentives to desired outcomes, such as meeting certain energy performance standards or procuring renewable energy. For example, in Arizona, data centers that attain a green building certification can extend the state’s transaction privilege and use tax exemption from 10 to 20 years. And in Illinois, data centers must be either carbon-neutral or certified under one or more accepted green building standards to qualify for the state’s sales tax exemption.
Meanwhile, zoning laws give local governments significant power to impact energy demand in their communities. In data center-heavy Loudoun County and Fairfax County in northern Virigina, policymakers recently revised zoning laws on data centers in response to local concerns about load growth, noise pollution and proximity to residential areas. Local governments can also use their zoning and permitting processes to promote the production of renewable energy at large industrial facilities.
Connecting new loads to the grid adds costs to the electric system, which may be borne by ratepayers through increased electricity prices, as opposed to by developers. States have powers to address this cost allocation issue. In 2025, legislators in multiple states — including Virginia, Georgia and California — introduced bills aimed at understanding and reducing data center development’s energy cost burdens to consumers. The bills direct state energy regulators to act on these cost issues, such as through analysis and ratemaking.
Governments outside the U.S. are also directly addressing electricity demand. In May 2024, Australia announced that all data centers serving federal agencies must achieve “excellent” or greater environmental performance standards by July 2025. And in 2023, Germany adopted an Energy Efficiency Law requiring all data centers in the country to meet specific energy efficiency metrics and source 100% of their electricity from unsubsidized renewable energy sources by 2030.
Address New Generation Needs
On the supply side, policymakers can look for ways to use clean energy to meet increased demand. Cities and states can directly procure clean energy for themselves or their communities through a variety of mechanisms, including green tariffs and power purchase agreements. Decisionmakers can also promote clean energy development through codifying clean energy commitments and incentives. For examples, almost half of all states have legally binding GHG reduction and/or clean or renewable energy goals, which provide foundational support for clean energy buildout. Ongoing development, expansion, and enforcement of these types of laws can help ensure the new energy load is met by clean sources.
Further, reducing the timelines associated with permitting and siting of new large-scale generation and transmissions facilities can help ensure that necessary infrastructure additions keep pace with growing demand. States are well situated to act on this issue. For example, California and New York established new boards and authorities to oversee and streamline certain permitting and siting processes. Cities and towns also have a stake in large-scale projects, since infrastructure could be sited in their jurisdiction. Local leadership and staff can actively engage with state counterparts to define challenges and determine solutions to permitting and siting issues for critical generation and transmission development.
State and local governments can also support adoption of distributed energy resources (DERs), such as solar and energy storage, to address load growth. Distributed energy can directly lower consumers’ energy bills, enhance resilience and reduce strains on the grid. However, restrictive or unclear local laws and permitting processes can add significant barriers to adoption. Local action can be particularly critical for unlocking distributed energy: Research found that participation in SolSmart, a national designation and technical assistance program designed to help local governments reduce red tape related to solar installations, was associated with an 18-19% increase in installed solar capacity per month.
Expand Transmission Capacity
Transmission is the key link between electricity supply and demand. Yet large-scale transmission buildout has slowed to a crawl over the past 10 years, threatening the ability for both new demand sources to connect to the grid and for new electricity generation facilities to come online. Having more transmission capacity, particularly between states and regions, would ease concerns about system reliability while enabling huge swaths of clean energy to interconnect and meet new demand.
State policymakers have authority to regulate how utility transmission plans are conducted and to introduce requirements and incentives that encourage transmission capacity growth. Multiple states like Minnesota, Massachusetts and California have passed laws requiring utilities to consider grid-enhancing technologies, which are designed to add more carrying capacity to existing transmission lines. Meanwhile, the Montana legislature ordered its Public Service Commission to establish an incentive for building new transmission lines with “advanced conductors” capable of transmitting more energy than standard technologies.
Finally, under two landmark federal orders issued last year, transmission providers are required to integrate state and local laws and regulations when conducting long-term transmission planning. State and local government staff can provide relevant data points to ensure their priorities are captured in transmission providers’ planning processes. Additionally, states have large roles in transmission planning scenario development and cost allocation through these orders.
Charting America’s Energy Future
The U.S. needs more electricity than ever. Rapid data center growth, a rebounding American industrial sector and residential electrification are all increasing demand for electricity at a rate not seen for decades. If left unaddressed, this new demand spike could increase greenhouse gas emissions, inflate consumers’ bills and make the U.S. grid less reliable.
Fortunately, policymakers at all levels have a menu of options to choose from, with many are already working on solutions. Acting quickly is imperative for connecting critical new loads to the grid while ensuring that everyone can keep the lights on reliably, affordably and cleanly.
