Key Questions: What Do Investors and Consumers Need to Know About Rapidly Rising Electricity Prices?

Artificial intelligence (AI) has continued to upend both financial markets and technological processes. U.S. power markets are one area facing significant disruption, as AI data centers are expected to consume large quantities of electricity, quickly. With consumers beginning to fret about rising electric bills, we explore how we got here and what our power outlook is, for both consumers and investors.

AI has undoubtedly driven investor attention and disrupted markets. For example, the classically defensive Utilities sector is the third best performing sector year-to-date, driven by investor expectations of higher electricity demand and expectations for increased profitability amongst Utility companies. With demand mounting for data centers, consumers are beginning to worry about rising electricity prices with advocacy groups starting to protest data center construction. It seems reasonable to say that data centers are responsible for increasing electricity prices, right? The answer is not as straightforward. 

A Brief Account of Past U.S. Electricity Demand

A review of U.S. Energy Information Administration (EIA) data shows that demand has been consistent over the past few years.¹ From 2005 to 2020, consumption grew at an anemic 0.1% annually. Previously, from 1990 to 2005, U.S. electricity consumption grew at 2% annually. As such, electricity consumption was nearly flat despite population and economic growth, as energy saving initiatives were implemented and the U.S. underwent a structural change from a manufacturing economy to a service economy. With AI data centers expected to consume ratably more power, the EIA is now forecasting a 1.7% annual growth rate in electricity consumption from 2020 to 2026.

The decade-plus-long lull in electricity demand growth is broadly leading to the problem of higher energy costs today, rather than current data center demand. Prior to AI advancements, electricity producers had generally planned for a weak demand environment. This expectation led to a weaker pipeline of new power generation facilities. Today, we see the result of this assumption as our grid is ill-prepared for expected future demand. Additionally, differing political priorities similarly impacted new power generation. In 2015, the Environmental Protection Agency unveiled a “Clean Power Plan” that sought to reduce carbon emissions from power generation by 2030. Today, we see bifurcation between states that emphatically followed this plan and those that were less prepared to follow new guidelines. 

Differences in Power Supply by State

States such as New York and California have broadly adopted stringent emissions standards on power generating facilities. Such measures include the accelerated closure of coal power plants, strict emissions standards, and emphasis on solar or wind power facilities. States such as Texas, Florida, and Ohio have taken a different approach by supporting more traditional power sources and closing legacy power plants at a more tepid pace. Department of Energy (DOE) data shows that from 2019 to 2025, New York and California experienced a rapid increase in electricity prices despite flat to declining demand. Florida and Ohio have seen slightly higher demand with similarly higher costs of electricity. Texas serves as a relative outlier in the data, as demand has actually moved higher (from 2022) and yet prices have moved lower. The state took an “all of the above” approach to power generation, primarily with the addition of relatively more natural gas and wind capacity, compared to the U.S. average mix of new power generation. 

Are AI Data Centers Responsible for Current Price Increases?

While AI data center demand dominates headlines, recent increases in electric prices are not necessarily the result of rapidly increasing demand, but rather a less economic mix of power generation paired with the lag effect of a multi-year period of anemic electricity demand. The lagging effect of weak electricity demand has led to low levels of spare capacity or readily available electricity. With electricity demand expected to increase as AI data centers come online, we believe that power prices will continue to advance in the near future. Overall, we believe that U.S. power markets will remain in a structural deficit as new power generation is constrained by years of underinvestment in generating capabilities. 

What Investors Should Know About Electricity Prices

For investors, we continue to be optimistic on energy and see an increasing need for power overall. Specifically, we believe that traditional fuel sources have an overall cost and utility advantage and that crude oil, natural gas, and uranium demand may surprise to the upside versus consensus expectations. To benefit from this, we suggest investors consider companies engaged in the production of crude oil, natural gas, and uranium, as well as independent power producers and utilities with power generation facilities. Additionally, we are similarly constructive on industrial companies that make power turbines, backup generators, and similar equipment.