Processing Power: The Effect of Data Centers on Wholesale Electricity Markets

Owen Kay, Robert Reaser () and Reid Taylor
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Robert Reaser: https://economics.ucdavis.edu/people/robert-reaser

No 2606, Working Papers from Federal Reserve Bank of Dallas

Abstract: Data centers are reversing two decades of flat U.S. electricity demand. We estimate their effect on wholesale electricity markets using an hourly, unit-level dispatch model in which 23 U.S. regional markets trade over capacity-constrained interfaces. Data centers raised wholesale prices by 6.9 percent nationally by 2025 and by 15.0 percent in northern Virginia; under our preferred scenario, the national effect reaches 12.3 percent by 2028. Trade spreads these effects to regions hosting few data centers. Roughly half the increase in generator payments is a transfer to inframarginal generators. We derive sufficient statistics for when load growth lowers retail rates.

Keywords: electricity prices; energy; data centers; artificial intelligence (search for similar items in EconPapers)
JEL-codes: L94 P18 Q41 Q42 Q48 (search for similar items in EconPapers)
Pages: 105
Date: 2026-03-20, Revised 2026-10
New Economics Papers: this item is included in nep-ain, nep-ene and nep-reg
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Working Paper: Processing Power: The Effect of Data Centers on Wholesale Electricity Markets (2026)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:feddwp:102959

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DOI: 10.24149/wp2606r1

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