Data center growth challenges electricity supply and price stability
AI for AI: Optimizing Additional Infrastructure Build-out to Power Artificial Intelligence Data Centers
Artificial Intelligence
Summary
Artificial intelligence data centers need a lot of electricity, but the current power grid wasn’t designed to handle this new demand. The authors study how faster growth in data centers without matching growth in power supply causes electricity prices to rise. They use mathematical models to show how uncertainty in future electricity needs and the risks in building new power plants make it hard to invest enough to keep prices steady. This means building more electricity infrastructure is tricky, even though it’s needed to support AI development.
Artificial intelligenceData centersElectricity gridElectricity demandPower generationMarket-clearing pricesStochastic processesCapacity expansionInvestment incentives
Authors
Alexander Crosier, Kyle Onghai, Ronnie Sircar
Abstract
The twenty-first century's transformative technology, artificial intelligence, is increasingly constrained by the twentieth century's transformative technology, the electricity grid. Rapid growth in electricity demand from data centers is leading to higher electricity prices, without a compensating supply-side response. We develop a framework linking data-center load growth, available generation capacity, and market-clearing prices to understand this phenomenon. We first analyze a deterministic model to show how differing estimates of demand and supply growth rates affect prices. We then model the expansion of new data centers and their associated electricity demand, together with build-outs of new electricity supply, as stochastic processes,resulting in probabilistic distributions of supply, demand, and prices rather than a single forecast. Finally, we formulate generation expansion as a stochastic control problem in which a revenue-maximizing investor dynamically chooses the intensity of supply-side investments. The analysis highlights a central challenge of the data-center build-out: even when rapid demand growth increases the need for new generation, the uncertainties related to load forecasts, development execution risks, and value cannibalization from overbuilding capacity may weaken incentives to invest at the pace required to keep electricity prices stable.