Why Do We Need Data Centers? What Their Growth Means for Business Energy Costs
Data centers are necessary for modern life because they store, process, and deliver the data behind nearly everything we do online. As the rise of AI platforms fuels rapid data center growth, their massive energy demand is reshaping both the power grid and business energy costs.
Browse by Category
Article Contents
Jump to a specific section
Key Takeaways
Data centers power nearly everything we do online, and the rising popularity of AI is driving a rapid wave of new development. These facilities require massive amounts of electricity and water to operate, putting new pressures on the power grid and the communities around them. For businesses, understanding these trends is crucial to take control of energy costs as demand keeps climbing.
- Today, data centers use roughly 4.5% of U.S. electricity but that share could rise to 12% by 2030.
- A single hyperscale AI data center can use as much electricity in a year as 100,000 U.S. households.
- Large data centers can use up to 5 million gallons of water daily, as much as a city with 50,000 residents.
- Businesses should take a more proactive approach to energy procurement to protect their business in this ever-changing market.
What Is a Data Center and What Is It Used For?
Data centers are facilities filled with servers, storage systems, and networking equipment that work together to run digital services. The purpose of data centers is to keep applications, websites, and data secure and available to be accessed at all times. Every time you stream a show, save a file to the cloud, load a website, or ask questions on an AI platform, a data center is doing the work behind the scenes.
How Does a Data Center Work?
Inside a data center, servers act as the main computing engine, processing requests and running applications. Meanwhile, storage systems hold the files, information, and databases those applications rely on. Networking equipment moves data from the storage system to the servers, and out to users, often within milliseconds. In the background, large cooling systems run continuously to keep hardware from overheating while backup power sources, like battery storage or generators, keep operations running if the grid goes down.
How Much Energy Do Data Centers Use?
Per square foot, data centers can consume 10 to 50 times more energy than a typical commercial office building. For example, a single AI-focused hyperscale data center can use 1 million megawatt-hours or more per year, which is roughly equivalent to the energy needs of over 100,000 U.S. households.
Where Data Center Electricity Demand Hits Hardest
Nationally, data centers represent roughly 4.5% of U.S. electricity consumption, but that share climbs sharply in regions where data centers are clustered together. In Virginia, data centers already account for 25% of the state’s electricity use, and similar growth is underway in Texas and central Ohio. In these regions, concentrated AI data center demand requires expensive utility upgrades, causes electricity rates to rise, and increases the risk of outages when the grid is stretched thin.
The Impact of Data Centers on the Power Grid
As each new data center comes online, it adds a large, 24/7 electricity demand to the grid that requires new generation, transmission lines, and other grid upgrades to keep power supply reliable. The biggest challenge is timing. A data center can be built in a couple of years; however, new power plants and transmission lines often take much longer to plan, permit, and construct. That gap has forced some utilities and grid operators to slow new connections or require data centers to pay upfront for the grid upgrades they need.
Can Data Centers Raise Electricity Prices?
Data center power consumption can raise electricity prices, but how much depends on your local grid and how regulators allocate costs. When the grid is overloaded, grid operators must run more expensive back-up generation sources to keep up with demand. This can cause short-term spikes in electricity rates, which can cause an uptick in bills if your business is on a variable rate or index plan. Utilities also often pass the cost of new transmission lines and grid upgrades to all customers through delivery charges, even if no data centers are nearby.
What Is the Environmental Impact of AI and Data Centers?
It takes enormous amounts of power and water to keep data centers running, and AI’s heavier workloads only push those demands higher. Data centers also have a broader environmental impact through emissions from the power plants that supply them, land cleared for construction, and the resource-intensive manufacturing of the chips and equipment inside them. The total environmental impact of a data center comes down to where a facility is built, where its electricity comes from, and how efficiently it’s designed.
How Do Data Centers Use Water for Cooling?
Servers can generate intense heat, so many data centers rely on evaporative cooling systems that carry heat away as water evaporates. The process operates much like how sweat cools the body. With such demanding cooling needs, data centers can use up to 5 million gallons of water daily, which is roughly the same daily usage as a city with 50,000 residents. While alternatives like air cooling and closed-loop liquid cooling can drastically reduce data center water use, they typically require even more electricity, forcing operators to choose between higher water use or higher power consumption.
Improving Energy Efficiency in Data Centers
Improving energy efficiency in data centers needs to start with the hardware, since newer processors can handle more computing work while using less electricity. Operators can also get more out of the equipment they already have by consolidating workloads onto fewer servers instead of leaving machines running idle.
On the facility side, smarter building layouts and advanced cooling methods, like liquid cooling, can help reduce the energy spent keeping equipment cool. Energy management software can maximize these efforts by automatically slowing down or powering off idle equipment, so electricity isn’t wasted when computing demand drops.
Can Renewables Support Data Center Energy Needs?
On-site renewable energy systems have the potential to significantly reduce the impact of data centers on the power grid, especially when paired with battery storage systems. For example, Google is building the Meitner Energy Center in the Texas Panhandle alongside more than a gigawatt of on-site wind, solar, and battery storage. It will also feature on-site natural gas generation to fill any gaps. This type of development strategy can help the data center industry grow with fewer emissions and less strain on the power grid.
How Data Center Growth Affects Your Business Energy Strategy
As data center energy demands continue to transform the energy landscape, simply renewing your contract at the offered rate carries much more risk than it used to. Here’s what businesses should consider when shopping for their next energy contract:
- – Strategically time your contract renewal. Start exploring suppliers, rates, and plans early so you can make an informed decision rather than rushing to lock in a rate.
- – Consider alternative contract structures. Weigh whether a fixed, variable, or blended pricing structure makes the most sense for your business and market.
- – Monitor the market for delivery charge increases. Utilities often pass grid upgrade costs to all customers, so a rate increase can impact your monthly bills.
- – Enroll in a demand response program. Your business can earn bill credits or other incentives for reducing your usage during peak demand periods.
- – Partner with an industry expert. Commercial energy brokers, like Integrity Energy, offer personalized guidance and plan recommendations based on market conditions.
What Does the Future of Data Centers Look Like?
Data center development doesn’t show any signs of slowing, and experts project that data centers could consume about 20% of all U.S. electricity by 2035. Meeting that demand will require more efficient hardware that packs greater computing power into less space, advanced cooling systems, grid upgrades, and new renewable energy and battery storage systems.
Ultimately, the industry’s future depends on balancing the growing need for computing power with the limits of the grid and natural resources. In this ever-evolving energy landscape, a proactive energy strategy will help your business stay ahead of the market and protect your bottom line.
Frequently Asked Questions About Data Center Development
Why are data centers controversial?
Data centers power services that we rely on every day, but large-scale facilities put a lot of strain on local resources. The most common concerns include rising energy costs, water use, noise pollution, and land development near communities. Some critics also question whether the tax incentives used to attract data centers are worth the long-term tradeoffs.
Who owns data centers?
Most of the largest data centers belong to tech giants like Amazon, Microsoft, Google, and Meta. Colocation companies like Equinix or Digital Realty also lease data center space to multiple businesses. Banks, hospitals, universities, and government agencies also run their own independent data centers.
Is it safe to live near a data center?
While data centers don’t carry the same risks as heavy industrial facilities, they can affect nearby residents. Many residents are impacted by constant noise from cooling equipment, emissions from diesel backup generators, and their impact on local water quality and supply.
Will data center development ever slow down?
In the near future, it’s not likely that data center development will slow down. The International Energy Agency (IEA) reports that global data center electricity demand grew 17% in 2025 alone, and it projects demand will double by 2030. As the popularity of AI grows, it’s likely that data centers will continue being built for many years to come.
Why are AI data centers being built near power plants?
Connecting a new large load to the grid can take years, so many developers are going straight to the source. Co-locating data centers with a power plant or other on-site generation sources, like solar panels and storage, can speed up access to electricity and reduce the need for new transmission upgrades.
How long does it take to build a data center?
Data center construction typically takes 18 to 24 months in most U.S. markets, but securing power often takes much longer. The national average wait time for grid connection is about four years, while connection for 100-megawatt facilities in hot spots like Northern Virginia can take up to 7 years.
Protect Your Business from Rising Energy Costs
Data center development isn’t slowing down any time soon, but it doesn’t have to impact your bottom line. Future-proof your business with a personalized plan and energy management strategy from Integrity Energy.
About the Author 
Makena Piepsny
Read more from Makena …
Follow Makena Piepsny on
