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Processing Power: The Effect of Data Centers on Wholesale Electricity Markets

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Abstract

Artificial-intelligence-driven data centers are reversing two decades of flat U.S. electricity demand and have generated questions about how this growth will impact electricity prices. We quantify this effect using an hourly, unit-level least-cost dispatch model covering wholesale electricity markets in the continental United States. We find that existing data centers have already increased wholesale prices by 3 to 5% on average nationwide, with substantially larger effects in regions hosting major data center corridors. Extending the model through 2028, we show that if proposed construction proceeds under high-utilization scenarios, wholesale prices could rise dramatically (50%), while more moderate build-out yields smaller (20%) but still meaningful effects. Impacts vary due to utilization and build-out assumptions. Finally, we use the model to address several policy discussions including optimal data center siting decisions and renewable build-out uncertainty.

Suggested Citation

  • Owen Kay & Robert Reaser & Reid Taylor, 2026. "Processing Power: The Effect of Data Centers on Wholesale Electricity Markets," Working Papers 2606, Federal Reserve Bank of Dallas.
    • Handle: RePEc:fip:feddwp:102959
    DOI: 10.24149/wp2606
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    References listed on IDEAS

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    1. Adam Feher & Emilia Garcia-Appendini & Roxana Mihet, 2025. "Is AI Trained on Public Money? Evidence from US Data Centers," Swiss Finance Institute Research Paper Series 25-73, Swiss Finance Institute.
    2. Christopher R. Knittel & Juan Ramon L. Senga & Shen Wang, 2025. "Flexible Data Centers and the Grid: Lower Costs, Higher Emissions?," NBER Working Papers 34065, National Bureau of Economic Research, Inc.
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    5. Severin Borenstein, 2002. "The Trouble With Electricity Markets: Understanding California's Restructuring Disaster," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 191-211, Winter.
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    Keywords

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    JEL classification:

    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • P18 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Energy; Environment
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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