Can the Power Grid Handle the Data Center Boom?

Author

Illiquid Insights
September 05, 2025

Illiquid Insights

Weekly stories on private markets, macro trends and the policies shaping finance.

In 2025, economists expect GDP from data center construction to exceed consumer spending for the first time ever.

With consumers squeezed by inflation and a cooling job market, Big Tech’s AI race is keeping the economy alive.

The market euphoria is being driven by hundreds of billions of dollars in planned data center capex.

Microsoft, Amazon, Meta and competitors are racing to build data centers to support the explosive growth of AI apps and services.

But one massive question looms: where will the power come from?

AI’s Energy Drag

The exploding popularity of ChatGPT and other AI tools has kicked off a race for computing power which is fueling the surge in AI capex.

Data centers aren’t new technology. Demand from websites and services like Netflix, Instagram and other cloud applications drove significant expansion since the 2000s.

But the compute required for large language models dwarfs earlier technology.

Since 2018, data center electricity use has doubled.

The main driver behind the surge in data center power demand is energy intensive Graphics Processing Units (GPUs). GPUs are at the heart of data centers, and run the massive amount of calculations required to train large language models.

The cutting-edge NVIDIA chips powering the AI revolution are a massive energy drain.

Per McKinsey, a data center requiring 30-megawatts (MW) of power was considered large a decade ago. Today, a 200-MW facility is considered standard.2   

The Cost of Power

After years of flat demand, US electricity use has been climbing since the first AI models were publicly released in 2021.

US electric consumption is on the rise.

Since then, consumption has only modestly grown at 2% annually. But data center power usage could triple by 2030, a massive strain on the existing grid.3  

The expected demand spike would come as electricity prices are already rising alongside consumption.

Energy costs have increased since AI’s release in 2021.

Retail electricity costs remain moderate so far, but data center hubs are flashing warning signs.

In the PJM interconnection, the world’s largest data center market, capacity prices soared from $29/MW-day in 2024/25 to $329/MW-day for 2026/27.4  

This tenfold surge in capacity prices will directly translate into higher rates for PJM consumers.

The Path Forward

Data centers will soon demand more power than the US currently produces.

Meeting it will require substantial investment in generation assets, modernized transmission and grid infrastructure.

Expect strong tailwinds for the energy (especially renewables and nuclear) and infrastructure industries as AI euphoria continues.

The information contained herein should not be construed as legal, investment, accounting or other professional services advice on any subject. ILLIQUID INSIGHTS LLC, its affiliates, officers, directors, partners and employees expressly disclaim all liability in respect to actions taken or not taken based on any or all the contents of this publication. Furthermore, opinions expressed by participants herein are not the opinions of ILLIQUID INSIGHTS LLC. Copyright © 2025 ILLIQUID INSIGHTS LLC. All rights reserved.