Electricity rates are climbing across the U.S., and many are pointing fingers at the surge in demand from AI data centers. That demand is expected to jump 25% by 2030.
In a healthy energy market, rising demand would be met by new investment in reliable, affordable power. But instead, U.S. generation capacity is being throttled by artificial constraints.
Green-energy advocates highlight the rapid expansion of subsidized solar power—especially in states like Texas—as proof that renewables can handle growing loads. But this model doesn’t scale. Wind and solar are intermittent and must be backed by “dispatchable” power—sources like natural gas, coal, and nuclear that can be turned on and off as needed. Batteries offer some support, but most only last a few hours before needing recharging.
To truly meet rising demand, the U.S. needs significant new dispatchable power. Instead, it’s moving in the opposite direction: nearly 10 gigawatts of reliable capacity—enough to power 7.5 million homes—was retired in 2024 alone.
The real cost of green energy isn’t just in dollars—it’s in lost reliability. Subsidies for solar and wind skew the market, making it nearly impossible for dispatchable plants to recover their costs. As a result, most new energy proposals are solar, even though grid operators are already struggling to handle the solar capacity in place.
The Inflation Reduction Act continues to pour subsidies into renewables until 2028, cementing the power of the green-energy lobby. Meanwhile, regulatory hostility—especially toward coal—has dried up investment in the kinds of energy the grid needs most.
State-level renewable portfolio standards (RPS), which require utilities to source a certain percentage of their electricity from renewables, have also driven up costs. In states with the strictest RPS mandates, electricity costs nearly three times more than in states without them.
These mandates and subsidies are especially harmful to multistate grid operators, who must buy bulk electricity from the lowest bidder—regardless of reliability. Subsidies let solar and wind undercut competitors, distorting capital investment and leaving the grid increasingly unstable.
Another roadblock: permitting and environmental reviews. In the U.S., energy infrastructure takes longer and costs more to build than in other developed countries. Red tape causes years of delay and billions in extra costs, slowing the grid’s ability to respond to new demand.
Looking long-term, nuclear is the most promising solution. It’s expensive to build but cheap to run, and it offers low-cost, low-emission electricity. Yet permitting a nuclear plant in the U.S. is nearly impossible due to overly strict regulations aimed at eliminating risk beyond reason.
Some blame the slow construction of new natural-gas plants on a turbine shortage, with lead times stretching past three years. But that’s largely regulatory, too. President Biden’s recent power-plant rules targeted natural gas, chilling investment. Under President Trump, those policies are being reversed—and companies are responding. Mitsubishi, for instance, just announced plans to double turbine production over the next two years.
The situation is becoming so dire that PJM—the country’s largest grid operator—recently floated a plan to ration electricity. Under the proposal, large data centers would have to either pay high capacity premiums or agree to shut down during peak demand. Preferential treatment would go to companies building their own power plants, favoring deep-pocketed giants over smaller players. The proposal was quickly withdrawn after backlash—but the fact it was even suggested reveals how strained the grid has become.
The core issue isn’t AI—it’s a self-inflicted supply crunch. While the U.S. restricts its energy production, China—also facing a data-center boom—is cutting electricity costs by building coal plants at record pace. In 2024 alone, China broke ground on nearly 100 gigawatts of coal capacity—enough to power over half of U.S. homes.
The U.S. needs to let the market work. That means ending green subsidies, reforming energy regulation, cutting permitting red tape, and reviving nuclear power. If policymakers get out of the way, private investment can build the world’s cheapest and most reliable grid.
Fail to act, and Americans will face a future of higher prices, blackouts, and lost economic leadership—as the AI revolution follows cheap power abroad.
Source: The Wall Street Journal