Data centers slow power rate hikes

Data centers use a lot of energy. So, it isn't surprising that people believe they are resource hogs that drive up energy costs.

This sentiment has driven communities, such as Spokane, Seattle and Tacoma, to enact data center moratoriums, either temporarily or permanently.But for all the furor over electricity cost increases, the numbers tell a different story. Both nationally and in Washington state, data center development has correlated with slower electricity-price growth, not spiking prices.

This is counterintuitive. But a national study found that between 2015 and 2024, areas that doubled data center capacity saw residential customers' electricity costs fall by 3.5%. This same study found no evidence costs were being shifted from commercial or industrial users to residential customers.

This pattern also appears in Washington state. Grant County, which accounts for one of the largest data center aggregations in our state, saw energy prices increase by an average of 19.5% from 2015 to 2024 while the rest of the state saw an average increase of 30.9%. Grant County's prices increased notably less than the rest of the state. Similarly, Douglas County experienced an increase of only 6.6% in energy costs over that time while increasing its industrial and commercial electricity sales by 185%.

One reason is that large users, like data centers, help reduce fixed costs to maintain the electrical grid. Building and maintaining energy generation and grid infrastructure entails massive costs that must be paid for, which utilities recover in energy rates. Most energy producers don't operate constantly at full output. When large consumers, such as data centers, are built and start adding demand, it allows local power plants to achieve higher utilization. This means that what needs to be charged for the fixed costs of construction and maintenance gets spread across more kilowatt-hours sold, lowering the costs for other customers.

To be clear, data centers will continue to increase electricity demand in the future. This increase highlights the growing need to update energy infrastructure and increase overall energy output. Data center development can help achieve those goals. While some data center developers prefer to stay out of direct energy grid development, Grant PUD requires them to pay increased prices for any upfront capital costs needed for updated infrastructure. Others, like Microsoft, help build clean energy storage compliant with laws and their own commitments necessitating the use of wind, solar and batteries.

While data centers are an easy bogeyman for energy cost increases, the major cost drivers in Washington state include energy regulations that artificially increase costs. Puget Sound Energy's rate adjustments earlier this year added about 12% to an average monthly electric bill due to additional costs from rules such as the Climate Commitment Act , the Clean Energy Transformation Act and others. Similar reasons have been cited by Avista. Other cost drivers include things like electric vehicle sales and home electrification.

In the future, energy demands will keep growing, both from data center development and growing electrification. Washington should be forward thinking, taking advantage of private developers who can help future proof our electrical grid.

Data center moratoriums may feel good to support, but we should focus our efforts on reforming costly and ineffective government regulations.

- Donald Kimball is the tech exchange editor for Washington Policy Center