Abstract:
“The Hidden Cost of the Cloud: Data Centers and Electricity Market Inefficiency”
Jamal Mamkhezri (New Mexico State University), Xiaochen Sun* (New Mexico State University), and Yuting Yang (University of New Mexico)
Concentrated demand growth is reshaping power systems worldwide. In electricity markets, localized load expansions interact with transmission constraints and can generate spatial differences in prices that reflect congestion rather than underlying generation costs. Understanding the magnitude and distribution of these effects is important for evaluating the consequences of large technological shocks, such as artificial intelligence–driven load growth. This paper examines how rapid data center expansion in Virginia between 2015 and 2024 affected wholesale electricity prices across census tracts. We find that transmission-related inefficiencies increased prices by $2.49 per megawatt-hour, approximately 70 percent relative to pre-expansion levels in affected areas. These effects arise from the spatial misalignment between new electricity demand from data centers and nearby generation capacity. Price increases are larger when generation is located farther from data center sites. Within census tracts where data centers and generation are co-located, inefficient pricing is lower when generation is from fossil fuel sources but higher when it is from renewable sources. Price effects are also larger during peak demand periods, in areas with more intensive data center expansion, and in predominantly non-White communities. These findings have implications for transmission planning and load siting in regions experiencing concentrated demand growth.
*Denotes presenter