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: Artificial-intelligence-driven data centers are reversing two decades of flat U.S. electricity demand and have generated questions about how this growth will impact electricity prices. We quantify this effect using an hourly, unit-level least-cost dispatch model covering wholesale electricity markets in the continental United States. We find that existing data centers have already increased wholesale prices by 3 to 5% on average nationwide, with substantially larger effects in regions hosting major data center corridors. Extending the model through 2028, we show that if proposed construction proceeds under high-utilization scenarios, wholesale prices could rise dramatically (50%), while more moderate build-out yields smaller (20%) but still meaningful effects. Impacts vary due to utilization and build-out assumptions. Finally, we use the model to address several policy discussions including optimal data center siting decisions and renewable build-out uncertainty.

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: 58
Date: 2026-03-20
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Persistent link: https://EconPapers.repec.org/RePEc:fip:feddwp:102959

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DOI: 10.24149/wp2606

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