There’s a reason electricity prices are rising

Over the past few months, Americans have looked aghast at their rising electricity bills — in New Jersey, for example, prices have risen 19% just in the last year — and found one clear scapegoat: data centers. As these energy-sucking operations proliferate, the thinking goes, they require more and more electricity, pushing prices up for everyone from big companies to small households.

The argument has become a political flash point. In Virginia, Democratic Gov.-elect, Abigail Spanberger, said during the campaign that she will push data centers “to pay their own way and their fair share.” Recently Sen. Josh Hawley (R., Missouri) wrote on X: “These data centers are massive electricity hogs. … Somebody has to pay for it all — and don’t believe any politician who says it won’t ultimately be you.”

But a new study from researchers at Lawrence Berkeley National Laboratory and the consulting group Brattle suggests that, counterintuitively, more electricity demand can actually lower prices. Between 2019 and 2024, the researchers calculated, states with spikes in electricity demand saw lower prices overall. Instead, they found that the biggest factors behind rising rates were the cost of poles, wires, and other electrical equipment — as well as the cost of safeguarding that infrastructure against future disasters.

“It’s contrary to what we’re seeing in the headlines today,” said Ryan Hledik, principal at Brattle and a member of the research team. “This is a much more nuanced issue than just, ‘We have a new data center, so rates will go up.’”

North Dakota, for example, which experienced an almost 40% increase in electricity demand thanks in part to an explosion of data centers, saw inflation-adjusted prices fall by around 3 cents per kilowatt-hour. Virginia, one of the country’s data center hubs, had a 14% increase in demand and a price drop of 1 cent per kilowatt-hour. California, on the other hand, which lost a few percentage points in demand, saw prices rise by more than 6 cents per kilowatt-hour.

That runs counter to traditional wisdom. Economics 101 teaches students that if demand rises, prices tend to go up. But electricity isn’t like any other economic market. Most of the costs in the system aren’t from pushing electrons through the grid, or what experts call variable costs. Instead, the largest costs are fixed costs — that is, maintaining the massive system of poles and wires that keeps electricity flowing. That system is getting old and is under increasing pressures from wildfires, hurricanes, and other extreme weather.

More power customers, therefore, means more ways to divvy up those fixed costs.

“What that means is you can then take some of those fixed infrastructure costs and end up spreading them around more megawatt-hours that are being sold — and that can actually reduce rates for everyone,” Hledik said.

That’s not the case everywhere. The report focused on 2019 to 2024, but more recently, researchers said, growing numbers of data centers could send prices higher. For example, PJM, the grid operator that covers states including Ohio, Maryland, West Virginia, and Pennsylvania, saw price spikes in power auctions between 2024 and 2025, owing in part to increased data center loads.

It depends on whether those operations require entirely new power plants or if they are gobbling up the grid’s existing capacity. It also depends on how well utilities are planning for that added demand.

Politicians have also been bickering over the extent to which renewables, such as wind and solar power, raise rates. But the new study shows that the costs of operating and installing wind, natural gas, coal, and solar have been falling over the past 20 years. Since 2005, generation costs have fallen by 35%, from $234 billion to $153 billion. But the costs of the huge wires that transmit that power across the grid, and the poles and wires that deliver that electricity to customers, are skyrocketing. In the past two decades, transmission costs nearly tripled; distribution costs more than doubled.

Part of that trend is from the rising costs of parts: The price of transformers and wires, for example, has far outpaced inflation over the past five years. At the same time, U.S. utilities haven’t been on top of replacing power poles and lines in the past, and are now trying to catch up. According to another report from Brattle, utilities are already spending more than $10 billion a year replacing aging transmission lines.

And finally, escalating extreme-weather events are knocking out local lines, forcing utilities to spend big to make fixes. Last year, Hurricane Beryl decimated Houston’s power grid, forcing months of costly repairs. The threat of wildfires in the West, meanwhile, is making utilities spend billions on burying power lines. According to the Lawrence Berkeley study, about 40% of California’s electricity price increase over the last five years was due to wildfire-related costs.

“The West, led by California, is in a really difficult situation,” said Devin Hartman, director of energy and environmental policy at the R Street Institute. “There’s really high costs to mitigating risks from those kinds of events.”

In certain states, the study found, policies aimed at boosting clean energy did raise customers’ electricity bills. While the researchers didn’t find a connection between overall wind and solar on the grid and higher prices, they did find that states with renewable-portfolio standards — which require a certain amount of clean energy on the grid — tended to have higher prices. In New Jersey, Maine, and Maryland, those standards raised prices by around 1 cent per kilowatt-hour between 2019 and 2024.

Generous subsidies for rooftop solar also increased rates in certain states, mostly in places such as California and Maine. In other areas, the effect is the opposite: If customers install rooftop solar panels, demand for electricity shrinks, spreading those fixed costs over a smaller set of consumers.

The researchers warned that these patterns might not hold permanently. To this point, national electricity prices have largely tracked inflation in most states. That could change in the next few years.

At the same time, more and more AI and data centers could still increase prices, if utilities are forced to build more infrastructure quickly. “These effects are only starting to be felt,” Hartman said. “The past is not necessarily prologue.”