AI boom leads to record costs on US grid and call for new plants

by Naureen S. Malik

Businesses and households served by the largest US power grid will spend a record $16.1 billion to ensure electricity supplies — a result that prompted immediate calls from utilities and energy groups to build more generation amid the AI frenzy.

The payouts to generators and other suppliers topped last year’s record $14.7 billion, according to PJM Interconnection LLC, which operates the grid stretching from the Midwest to the mid-Atlantic. That raises the capacity price per megawatt each day to $329.17 from $269.92.

The AI boom is driving the biggest surge in electric demand in decades, leading to soaring utility bills and disagreement over which power resources are best equipped to satisfy those needs. While the power industry is coalescing around new plants as a way to alleviate potential shortfalls — and to make money — such efforts would also risk adding to consumer costs at a time when politicians are sensitive about energy inflation.

“It literally tells you we are out of generation,” said Sean Kelly, a former power trader and chief executive officer of power forecasting firm Amperon Holdings Inc. “It’s good for traders, it’s good for asset owners, it is not good for consumers.”

The shares of independent power producers Constellation Energy Corp., Talen Energy Corp., NRG Energy Inc. and Vistra Corp. gained in late trading in New York on Tuesday.

 The results of PJM’s auction — which secures a year of electricity supplies starting in June 2026 — may add 1.5% to 5% to consumer electricity bills, according to Executive Vice President Stu Bresler.

“Customers are frustrated by high energy costs and I share their frustration,” Calvin Butler, chief executive officer of utilities owner Exelon Corp., said in an emailed statement.

The capacity auction has a compounding impact on customers as rising demand, shrinking supply and aging infrastructure add to costs, Butler said. To address the shortage, Exelon has proposed building power plants instead of only buying supply from others in the capacity auction, and then passing those costs directly to ratepayers.

Impact of data centers

David Lapp, Maryland’s People’s Counsel, pointed to data centers as the culprit behind another record auction: “Residential customers will continue to bear unreasonably high prices to support actual and projected power demands from data centers owned by some of the world’s biggest corporations.” In a statement Tuesday, Lapp said he expects many Maryland residents to see slight bill increases, though some may see small declines.

While PJM didn’t specify how much of the projected demand increase was tied to AI, Bresler said in a media briefing Tuesday that “the majority of the demand increase you saw was large loads and data center additions.”

After the auction, PJM’s contracted power mix will include 45% natural gas, 21% nuclear, 22% coal, 4% hydro, 3% wind and 1% solar. And although the grid operator has approved about 46 gigawatts of new power supplies for grid connection —  mainly renewables and batteries — those haven’t been built because of financing, permitting and supply chain delays.

The results of the auction come amid a debate over older fossil-fuel plants that had been expected to retire. The Trump administration has already moved to keep plants afloat, contending that they’re needed for grid reliability, while also phasing out tax credits for renewables.

Yet, with those subsidies expiring at a time of record auction prices, solar and wind developers will likely try to build everything they can in the next two years, according to Kelly. “We are going to see a lot of renewable generation before the end of 2027,” he said.

Copyright Bloomberg News