Is your electric bill going up? AI is partly to blame : NPR

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What is the object?
Electricity

How have prices changed since before the pandemic?
According to the Bureau of Labor Statistics, electricity prices have increased 40% since February 2020. This is an even bigger jump than the 26% increase in the overall cost of living.

Why have prices increased?
Demand for electricity has increased in recent years, partly due to all the new data centers that are springing up to serve the artificial intelligence boom. Some older power plants have been closed, and utilities are struggling to add new power generation, as well as make the power grid more flexible. Besides, the price of natural gas used to generate electricity has also increased.

Now that fall has arrived, Kathy Letourneau no longer needs to run her air conditioner around the clock. But residents of Fort Walton Beach, Florida also rely on electric heat to stay warm in the winter. Letourneau, who is 71, says her electric bill runs between $200 and $300 a month throughout the year.

“When you’re living on a fixed income, you realize it,” she says. “There have been times when we couldn’t afford it. We’ve had our lights turned off before.”

According to the Department of Energy, residential electric rates in Florida have increased by more than 13% over the past year. Letourneau and her husband are preparing for another hike next year.

“There are a lot of retirees on Social Security in Florida,” Letourneau says. “I mean, it’s hard.”

Across the country, residential electricity rates are rising twice as fast as the overall rate of inflation. The high price of electricity became a flash point in this week’s elections in both New Jersey and Virginia.

The rising costs are partly driven by the price of natural gas used to generate electricity. Natural gas prices fluctuate with the weather and the level of gas exports, which is increasing.

Demand for electricity has also increased

Due to increasing demand for electricity, electricity bills are also increasing.

In the first two decades of this century, demand for electricity barely grew. But over the past few years, people and businesses are getting involved more and more. The Energy Department expects demand to grow by 2.2% this year and 2.4% next year.

“There are automobiles that have transitioned from gasoline-powered vehicles to electric vehicles,” says Drew Maloney, president of the Edison Electric Institute, which represents power companies nationwide. “You’re also seeing stoves changing from gas to electric. And the rise of AI data centers.”

Utilities are trying to meet that demand by adding new generating capacity from wind, solar and natural gas to replace aging power plants that have gone out of service.

“We support developing all energy sources,” says Maloney. “We need as many electrons as possible on the grid to help keep the grid reliable and costs low.”

Who pays for the electricity needed for AI?

Utilities say building new power supplies with a more flexible electric grid would cost more than a trillion dollars over the next five years. The question before regulators is who will pay for it.

In theory, the new data centers emerging to support the boom in artificial intelligence should cover their electricity costs and at least a little more, potentially reducing the bills of nearby residential customers.

“It doesn’t seem that hard to do,” says Severin Borenstein, faculty director of the Energy Institute at UC Berkeley’s Haas School of Business. “But you’d be surprised how many politicians and regulators say, ‘Okay, this is an opportunity for economic growth. We should give them a good rate.’ And in their enthusiasm, they will start charging rates that won’t even cover incremental costs.”

If data centers are given discounted prices, residential customers may have to shoulder some of their costs. Nationwide, residential customers generally pay higher rates than commercial or industrial power users, according to the Department of Energy.

There are many ways to reduce a country’s overall electricity bill by adjusting when and where electricity is consumed. By far, the most expensive time to use electricity is when demand is at its peak – usually on the hottest days of summer when air conditioners are working the hardest.

“If you can take these data centers off the grid, let’s say 50-60 hours a year, they really won’t create any cost pressures,” Borenstein says.

Data centers can do this by temporarily switching to backup power, or rerouting their data traffic to cooler parts of the country. Borenstein suggests that regulators may require it. Electric vehicle owners also have a lot of flexibility in deciding when to plug in and charge.

Although demand for electricity is now growing faster than it was a few years ago, this growth is hardly unprecedented. Borenstein says demand for electricity more than doubled in the 1960s. That’s when air conditioning was becoming mainstream, making it comfortable for retirees like Letourneau to live in places like Florida.