Solmar Insights
Electricity consumption from US data centers could climb from 183 terawatt-hours (TWh) in 2024 to 426 TWh by 2030, according to a new report from the Kansas Health Institute. The anticipated 133% growth, driven by accelerating demand for artificial intelligence compute and digital platforms, is already complicating grid management, infrastructure planning, and projected clean energy transition timelines.
Key figures
183 TWh US data center electricity use in 2024
426 TWh projected data center electricity use by 2030
56% of data center electrification met by fossil fuels
Estimated 17 billion gallons of direct water use by US data centers in 2023
Surging demand from AI and digital infrastructure
According to the Kansas Health Institute, the rapid expansion of artificial intelligence applications and broader digital infrastructure is fueling a dramatic increase in US data center power and water consumption. The 133% projected increase in electricity demand outpaces overall grid load growth and puts pressure on the existing generation fleet and transmission resources.
The report notes that data centers represented more than 4% of total US electricity use in 2024, underscoring their outsized impact. Clusters like Northern Virginia’s “Data Center Alley” remain particular hotspots. As AI compute hardware proliferates and hyperscale operators invest in additional capacity, these facilities are expected to become even larger grid customers in key ISO/RTO markets.
Water usage is also on the rise. US data centers used an estimated 17 billion gallons of water in 2023, with Lawrence Berkeley National Laboratory scenarios indicating that number could double or quadruple by 2028. The sustainability challenge is compounded by the fact that 20% of US data centers already sit in water-stressed locations, according to the report.
The result is an intensifying debate for energy buyers, power providers, and site selectors, balancing operational requirements, economic incentives, environmental regulations, and local community benefit as they navigate the intersecting priorities of digital growth and resource management.
Generation mix pressures and grid constraints
Currently, 56% of the electricity powering US data centers is sourced from fossil fuels, according to the KHI report. Renewables contribute 22%, while nuclear provides an additional 21%. As a result, most data centers remain dependent on the carbon intensity of local grids, despite many hyperscalers and colocation providers publicizing renewable procurement targets and clean energy ambitions.
The rise in data center load is already impacting power supply planning and clean energy timelines. The KHI analysis highlights delays in coal plant retirements and headwinds for meeting national and regional decarbonization priorities. Utility resource planners and policymakers are faced with the reality that renewable generation alone will not be sufficient to serve explosive hyperscale demand alongside existing grid customers under current trajectories.
Water use adds further complexity for regions where generation relies on water-intensive cooling or where hydropower and nuclear fleets face drought exposure. Areas under water stress may become less attractive for additional facility siting, amplifying the importance of integrated resource and land-use planning.
The report provides a quantitative baseline for industry and public sector leaders to evaluate the tradeoffs in site selection, energy procurement, and infrastructure investment under increased scrutiny from local stakeholders and regulatory authorities.
Policy tensions and regulatory responses
Policymakers across states and localities are challenged by the conflicting priorities of economic development and environmental stewardship. The KHI report describes a “tension between furthering state-level economic development interests and … local community health and environmental concerns.” Data center developments bring tax revenue, high-value jobs, and digital infrastructure critical for industries, but they also increase pressure on local grids, water systems, and air quality.
Analysis in the report is positioned to inform regulators, municipal planners, and public health professionals as they weigh new proposals. Concerns about emissions from increased fossil fuel use, water withdrawal rates, and local infrastructure impacts are likely to shape future zoning, permitting, and energy procurement requirements.
Recent examples include more stringent power availability assessments during site due diligence, minimization strategies for water use, and heightened scrutiny of backup diesel generation. Certain municipalities and utility territories are exploring load growth caps and phased interconnection approaches for large new hyperscale campuses.
Market participants will need to monitor emerging regulatory efforts that could delay or reshape the approval process for data center projects, particularly in regions already facing transmission congestion or environmental nonattainment status.
Generation shortfall and supply planning risks
The projected surge in data center demand is adding to resource adequacy concerns for utilities and grid operators. Analysis from Bank of America, cited in the KHI report, estimates that the US will need more than 230 GW of new generation over five years to keep pace with new and existing loads. However, regulated utilities currently plan to add only 93 GW of accredited capacity in that period, resulting in a supply gap exceeding 100 GW if load projections hold.
Data centers alone may add roughly 125 GW of new electric load over the same window, further intensifying competition for new power connections, energy procurement, and transmission upgrades. This shortfall heightens the risk of capacity constraints, curtailment, and increased wholesale power prices in high-growth regions.
The interconnection queue process is becoming lengthier and more competitive, with developers facing mounting requirements for grid upgrades, network study fees, and longer lead times. Market participants are responding by pursuing private transmission, on-site generation, and direct procurement agreements to hedge against grid uncertainties.
Failure to resolve the projected gap between new load and planned generation threatens both digital infrastructure growth and broader reliability goals, especially in ISOs with accelerating penetration of variable renewables.
Market context for buyers and investors
The growth trajectory for US data center energy and water consumption is reshaping project development economics, due diligence standards, and long-term risk assessments for institutional investors and credit providers. Power procurement is emerging as a primary consideration in site selection, with buyers evaluating market exposure to grid constraints, capacity markets, access to renewable PPAs, and the potential for on-site power solutions.
Financiers and asset managers are revisiting pro formas to account for rising utility costs, anticipated power price volatility, and the likelihood of increased regulatory requirements tied to energy and water use. The trend is also driving innovation in cooling systems, grid services, and flexible load management as data center operators seek to optimize their power and water footprints.
The interplay between infrastructure demand, public policy, and grid capacity is expected to continue shaping transaction terms, cost of capital, and portfolio allocation strategies for the foreseeable future, particularly in markets closely tied to large-scale digital expansion.
Stakeholders must engage proactively with utilities, state agencies, and community leaders to ensure projects can deliver both economic returns and environmental compliance in a tightening resource environment.
What this means for buyers
Institutional buyers, developers, and investors should expect data center project underwriting and operations to face heightened risk from grid supply shortfalls, rising power prices, and stricter regulatory oversight as electricity demand surges. Competing for new capacity in high-growth regions will require early and creative power procurement as well as cross-stakeholder engagement on water and environmental impacts. New projects and refinancing opportunities will likely hinge on deliverable, sustainable power arrangements. Monitoring both utility responses and local rules is now central to investment and development strategy in the US digital infrastructure sector.
