Data Centers Projected To Consume Over 6% Of All U.S. Electricity By 2028
Data centers’ share of U.S. energy consumption is on pace to quadruple between 2018 and 2028, according to a report released Tuesday by investment bank TD Cowen.
The surge in electricity demand has major data center markets on the verge of running out of reliable power — if they’re not tapped out already.
Third-party data centers will represent 6.6% of electricity consumption in the U.S. by 2028, up from just 1.5% in 2018, according to TD Cowen. In 2023, data centers accounted for 2.3% of the country's electricity consumption.
The numbers reflect the data center industry’s rapidly escalating impact on regional power grids as tech giants like Google, Microsoft and Amazon race to secure the infrastructure to support generative artificial intelligence. TD Cowen’s data doesn't include the data centers that tech companies build and operate themselves, meaning that data centers’ actual share of energy use will likely be even higher, the report’s authors say.
The report paints a detailed picture of how surging demand from data centers is driving increasingly acute power constraints in the largest digital infrastructure markets.
Projects in industry hubs like Northern Virginia and Columbus, Ohio, must now wait a minimum of six or seven years to be connected to the power grid, TD Cowen found. Meanwhile, data center electricity demand in Dallas has already exceeded the local grid’s ability to deliver power reliably, with key markets like Silicon Valley expected to reach this threshold in as little as three years.
Still, the report’s authors believe that the unprecedented pace of data center development is likely to continue, as data center providers and tenants are already responding to these constraints with significant shifts in where data centers are built and how the energy they need is acquired.
“Considering the evolutionary response is already underway, and the hyperscalers facing these challenges are among the best capitalized companies globally, we see a path forward for the broader ecosystem to navigate the growing power constraints,” wrote Michael Elias, senior equity research analyst at TD Cowen and one of the report’s authors.
Big Tech’s massive investments in AI over the past 18 months have added fuel to a sector that was already experiencing unprecedented growth, sparking a generative AI-driven digital infrastructure boom and a ballooning pipeline of new data center projects. As many as 130 hyperscale facilities are expected to come online each year for the next decade, according to data from Synergy Research.
Not only are there more data centers being built, but those data centers are getting bigger. The size of hyperscale data center campuses, measured in the amount of energy they consume, has grown quickly over the last decade from dozens of megawatts to hundreds, with major tech companies now looking to deploy more than a gigawatt of capacity at a time.
According to TD Cowen, data center lease deals signed in 2023 alone had an impact equivalent to adding a second New York City to the power grid.
The report provides new insights into the worsening power crisis confronting data center developers in key industry hubs. In all of the top 22 data center markets, projects 30 megawatts and larger now face minimum wait times of 2.5 years for grid connections from regional utilities.
And that’s in a best-case scenario. Major markets like Atlanta, Portland, Sacramento and Silicon Valley have six-year waits, while lead times in Columbus have extended to seven years.
These constraints are only getting worse. Electricity demand in key markets is outpacing the ability of local utilities and grid operators to supply new power with reliability that meets industry standards, according to TD Cowen. In Dallas, now the fifth-largest data center market, energy demand has already exceeded supply relative to levels that would ensure adequate system reliability, putting the area at risk of major outage events like the blackouts that followed Winter Storm Uri in 2021.
Other major data center hubs aren’t far behind.
Northern Virginia, the world’s largest data center market, is expected to run out of “reliability-rated” power by winter of 2027, with data center growth in New Albany, Ohio, and Silicon Valley exceeding these limits in 2028 and 2034, respectively.
TD Cowen’s study adds to a growing body of evidence that data center energy demand is pushing power grids across the U.S. to the brink. DigitalBridge CEO Marc Ganzi suggested earlier this month that the entire U.S. grid today has less than 7 GW of total available capacity, with data centers on pace to be starved for power in as little as two years.
But even as the data center industry’s growing energy footprint drives increasingly acute power constraints, TD Cowen analysts argue that data center developers will be able to continue building new facilities at a record pace.
As Bisnow has reported previously, power shortages are already driving significant shifts in how the data center industry approaches new development. Developers are now willing to build new facilities wherever power is available, launching large-scale projects in locations that no tenant would have considered just two years ago. At the same time, data center providers and energy firms are increasingly partnering on creative approaches to bring new capacity to regional power grids alongside new data center projects.
TD Cowen also points to data centers generating their own power as a key element of overcoming growing power challenges. In the short term, this means increased utilization of natural gas generators, such as those employed at Microsoft’s Ireland campus. But eventually, this could mean nuclear, particularly the use of small modular reactors such as those produced by Oklo and NuScale — a technology that is drawing a new wave of interest from the data center industry.
