By Roxby Hartley, Ph.D., Climate Risk Director, EcoEngineers

Electricity markets on both sides of the Atlantic are entering uncharted territory. Prices in recent capacity auctions have surged more than 1,000% in some regions, signaling that the era of cheap, abundant electricity is ending. The culprits: explosive growth in data center demand (driven by artificial intelligence), accelerating electrification of heating and transport, and a backlog of clean energy projects waiting years to connect to the grid.[1]

One of the largest regional transmission organizations (RTO) in the U.S., PJM Interconnection, which serves 65 million people from Chicago to Washington, D.C., cleared its 2026/27 auction at the maximum allowable price: $329.17 per megawatt-day, a tenfold increase over 2022 levels.[2] Midcontinent Independent System Operator (MISO) and Britain’s capacity markets reported similar price spikes, showing that this is no isolated phenomenon.

Digital Growth Is Driving Demand Like Never Before

Worldwide, data center electricity consumption is slated to reach around 448 terawatt-hours in 2025 (final figures are not yet available) and is on track to more than double by 2030.[3] The U.S. is expected to account for most of that increase, adding the equivalent of New York State’s power use to the grid in just six years.

Hyperscale facilities consume as much electricity as mid-sized cities. Amazon’s new campus with Talen Energy alone will require 960 megawatts of continuous power.[4] Unlike other large industrial users, data centers cannot easily reduce load during peak times, meaning they place constant, inflexible stress on the grid.

Fossil Fuels Still Dominate the Response

Despite ambitious clean energy targets, natural gas and coal continue to dominate capacity auctions. In PJM’s latest results, gas made up 45% of cleared capacity and coal 22%, with renewables just 4%.[5] Interconnection queues are the bottleneck: PJM has over 46 GW of approved renewable projects waiting three to five years for grid connection.[6]

This reliance on fossil generation risks undoing a decade of decarbonization gains. If 300 additional terawatt-hours of demand are met with today’s resource mix, power sector emissions could rise 125–156 million tonnes annually, about 10% of current U.S. electricity emissions.[7]

Water Stress: The Other Hidden Cost

Electricity is not the only resource under pressure. Data centers are also massive consumers of water, using on average 1.8–1.9 liters for every kilowatt-hour of electricity consumed, most of which evaporates and cannot be returned to the source.[8] In 2021, U.S. data centers collectively used about 164 billion gallons of water, equivalent to the annual consumption of a mid-sized U.S. state.[9] A single hyperscale data center can use as much water as a town of 50,000 people.

Cooling is the main driver. Most facilities rely on evaporative or evaporative-assisted cooling, which is highly efficient but water-intensive. Roughly 80% of water withdrawn for cooling is lost to evaporation, and only the remainder is discharged to wastewater systems.[10] This means water demand is permanent, not cyclical.

Emerging technologies could help. Direct-to-chip liquid cooling and full immersion cooling circulate coolant directly around processors, dramatically reducing evaporation losses. Some operators, like Amazon Web Services, have achieved water usage effectiveness (WUE) as low as 0.19 liters per kilowatt-hour by using free-air cooling and building in low-humidity regions.[11] These strategies won’t work everywhere but show how technology and siting decisions can minimize water stress.

Regional implications are significant. Northern Virginia’s data center cluster nearly doubled its water use from 2019 to 2023, reaching almost 2 billion gallons annually. In drought-prone areas like Arizona, New Mexico, and West Texas, proposed data centers face growing community opposition over water scarcity. As AI-driven electricity demand rises, utilities and operators will need to balance digital infrastructure growth with sustainable water management, including siting facilities where supplies are sufficient and investing in advanced, water-efficient cooling technologies.[12]

Can Nuclear and Renewables Close the Gap?

Big Tech and policymakers increasingly view nuclear energy as a cornerstone for decarbonizing data center demand. Small modular reactors (SMRs) are central to this strategy, offering scalable, factory-built units that can be sited closer to load centers. Amazon’s agreement with Energy Northwest aims to deploy 5 gigawatts of SMR capacity by 2039, and Microsoft’s plan to restart Three Mile Island Unit 1 represents a major step toward restoring carbon-free baseload power. Google’s partnership with Kairos Power adds another 500 megawatts of future capacity. These projects could collectively generate tens of terawatt-hours annually, but most are unlikely to deliver electricity before the mid-2030s.[13]

While nuclear energy offers reliability and low-carbon operations, it cannot close the gap alone, at least not fast enough. Renewables remain the most immediate lever for relieving pressure. PJM and MISO interconnection queues already hold more than 70 GW of wind, solar, and battery storage projects that could be online within three years if permitting and transmission upgrades were streamlined.[14] Unlocking these projects would significantly reduce the need for coal and gas peaker plants, cutting emissions and stabilizing capacity prices.[15]

Storage technologies, particularly lithium-ion and emerging long-duration storage solutions, are critical to pairing renewables with the “always-on” needs of data centers. Advances in grid-forming inverters and hybrid renewable-plus-storage projects mean solar and wind can now provide grid services, voltage support, frequency regulation, and spinning reserves, that were previously the domain of fossil generation.[16]

Policy reforms could further accelerate this transition. Federal Energy Regulatory Commission (FERC) Order 2023, aimed at streamlining interconnection, and state-level transmission planning mandates can reduce the multi-year backlog. Market reforms that reward flexibility, such as capacity payments for demand response, virtual power plants, and aggregated distributed energy resources, will also help meet peak loads without building additional fossil capacity.[17]

In combination, these solutions form a balanced approach: renewables and storage meet the bulk of incremental demand, while nuclear fills the reliability gap and keeps emissions near zero. This portfolio offers the fastest, lowest-cost pathway to align rising electricity demand with climate commitments.

Consumers Will Foot the Bill

Ultimately, higher capacity costs are passed on to consumers. Analysts project cumulative rate increases of 30 to 60% by 2030 in PJM regions. Residents in data center hubs like Northern Virginia will pay a disproportionate share, effectively subsidizing AI’s power appetite.[18]

Conclusion

The emerging power crunch is not merely an engineering or pricing challenge; it is a policy and planning crossroads. The AI revolution, data center buildout, and rapid electrification are colliding with outdated grid interconnection processes and slow infrastructure deployment. Left unaddressed, these pressures will drive higher costs for consumers, lock in fossil dependence, and risk derailing climate commitments. The solution is within reach: accelerate clean energy connections, diversify generation with proven renewables and reliable nuclear, and invest in water-efficient cooling technologies. Doing so will not only stabilize electricity markets but also enable sustainable digital growth, ensuring that innovation is powered by resilience, not scarcity.

[1] Christian Science Monitor. “Electricity prices rise as AI and data centers boost demand.” August 20, 2025.

[2] PJM Inside Lines. “PJM Auction Procures 134,311 MW of Generation Resources.” 2025.

[3] Gartner. “Gartner Says Electricity Demand for Data Centers to Grow…” 2025.

[4] Sherwood News. “Power demand from US data centers will double by 2030.” 2025.

[5] PJM Inside Lines. “PJM Auction Procures 134,311 MW of Generation Resources.” 2025.

[6] Evergreen Action. “PJM’s Latest Power Auction Should Be on Your Radar.” 2025.

[7] U.S. Energy Information Administration. “How much carbon dioxide is produced per kilowatthour of U.S. electricity generation?” 2025.

[8] Meta & Environmental and Energy Study Institute. “Data Center Water Use.” 2025.

[9] Digital Infrastructure. “Data Center Water Usage.” 2025.

[10] Meta & Environmental and Energy Study Institute. “Data Center Water Use.” 2025.

[11] Digital Infrastructure. “Data Center Water Usage.” 2025.

[12] Meta & Environmental and Energy Study Institute. “Data Center Water Use.” 2025.

[13] Reuters. “Big Tech contracts inject life into new nuclear.” February 19, 2025.

[14] Evergreen Action. “PJM’s Latest Power Auction Should Be on Your Radar.” 2025.

[15] U.S. Energy Information Administration. “How much carbon dioxide is produced per kilowatthour of U.S. electricity generation?” 2025.

[16] Grid-Forming Technology in Energy Systems Integration. Energy Systems Integration Group. 2024. — Discusses how grid-forming inverters and related technologies enable inverter-based resources (wind, solar, batteries) to provide system services like frequency and voltage regulation.

[17] Explainer on the Interconnection Final Rule. FERC. July 28, 2023. — Details Order No. 2023 and its reforms: clustering, readiness requirements, penalties, timeline for compliance. Federal Energy Regulatory Commission

[18] Christian Science Monitor. “Electricity prices rise as AI and data centers boost demand.” August 20, 2025.