The Grid Reliability Crisis Is Here

According to Mark Christie, outgoing Chairman of the Federal Energy Regulatory Commission (FERC), the grid reliability crisis is here as the recent capacity auction of the PJM Interconnection, the nation’s largest grid operator, failed to meet the minimum reserve margin required to ensure reliable service for the first time ever. Christie emphasized the need to bring the new generation online quickly, urging policymakers and industry to accelerate permitting processes and market reforms that incentivize capacity additions.

Electricity demand has soared as artificial intelligence (AI) and data centers, along with increased electrification, have grown. Transmission planners are forecasting an 8.2% increase in U.S. electricity demand over the next five years, after 20 years of annual demand growth remaining below 1%. Electricity output has grown by 4% during the first 6 months of this year, with strong growth from solar and wind power.

Utility-supplied electric production from January to the end of June was 2,188 terawatt-hours (TWh), the highest ever for this period. Solar output grew by 32% over the past year, and wind production reached a record, growing by 6% for the first 4 months of this year over the same period last year. From January to June, fossil fuels produced 55% of the nation’s electricity, down from 56%, with nuclear power and renewable energy, including hydropower, producing the rest. Due to higher natural gas prices, gas generators produced 4% less electricity than for the same period last year, and coal generators produced 17% more. Coal generated 16% of the nation’s electricity, which is the highest level for the first half of this year since 2022.

Due to the instability that solar and wind generators can cause to the grid, FERC approved new standards to increase grid reliability. The standards, which were developed by the North American Electric Reliability Corporation (NERC), specifically target “inverter-based resources” (IBRs) — technologies such as solar and wind that rely on power electronics rather than traditional spinning technology. Solar and wind generators are not able to respond to voltage and frequency disturbances on the grid, as was experienced by the blackout in Spain and Portugal in May. The new FERC rules require IBRs to remain connected to the grid during these disturbances to prevent sudden losses of power that could destabilize the electric system.

More Utility Infrastructure Means Higher Electricity Prices

U.S. power companies are charging more to cover investment in upgrading the grid and supporting increased demand from data centers, electric vehicles, and other electrification pushed by the Biden administration. The average electricity rate in June of 2025 was 6.7% higher than the rate in the same month in 2024, resulting in residential electricity prices rising more than twice as fast as the overall consumer price inflation in the United States during that time period. Edison Electric Institute expects utilities to need to invest around $203 billion each year in 2025 and 2026, more than any year since 2000.

Utilities want tech companies to pay more to connect their new data centers to the power grid, as the cost of new power infrastructure needed to serve data-center demand could further raise rates for other customers. Utilities particularly want assurances from tech companies that they will pay for surplus costs if forecasted AI demand results in more power lines and plants than U.S. data centers ultimately need.

Dominion Energy, operating in Virginia, which has the most data centers in the world, proposed a series of measures that would require data-center developers to commit to longer-term electricity contracts and agree to pay for certain amounts of power — even if they use less. Last year, Dominion received requests from data-center developers that would require 40 gigawatts of electricity. In the early days of data-center development in Virginia, data centers required between 10 megawatts and 20 megawatts of electricity, which has now grown to at least 300 megawatts. Dominion estimated that it will have to invest more than $40 billion in the state over the next five years.

Tech companies indicate that Dominion has gone too far in shifting risk onto them. These companies say they want to pay their fair share of power costs, but do not want to pay substantially more because they see the investments as benefiting other customers.

Utilities in other states, Kansas, Missouri, and Texas, are debating who should pay for the new infrastructure. Ohio recently became one of the first states to require companies to pay more of the costs associated with connecting data centers to the grid after receiving requests for more than 50 times the amount of power used by its existing data-center customers.

Analysis

The demand for electricity in the U.S. due to AI, particularly from data centers, is projected to grow significantly by 2030.

• McKinsey & Company: McKinsey estimates global demand could grow 19–22% annually from 2023 to 2030, reaching 171–219 gigawatts (GW), or up to 298 GW in a high-growth scenario. This compares to 60 GW today, potentially requiring double the capacity built since 2000 in a fraction of the time to avoid shortages.
• Lawrence Berkeley National Laboratory: Data center electricity usage was 176 TWh in 2023 (4.4% of total U.S. electricity). It is projected to double or triple by 2028, reaching 325–580 TWh (6.7–12% of total US electricity). AI applications are a significant driver of this growth.
• International Energy Agency: U.S. data centers are expected to account for nearly half of the growth in electricity demand by the end of the decade, with a 130% increase in data center power consumption from 2024 to 2030, largely due to AI models like ChatGPT and Gemini.
• Electric Power Research Institute: Data centers are projected to consume 4.6% to 9.1% of US electricity by 2030, up from 4% today, with AI queries requiring about 10 times the electricity of traditional internet searches.
• Bank of America Institute: Predicts overall US electricity demand to grow by 2.5% annually over the next decade (compared to 0.5% in the past decade), with AI-driven data centers as a key contributor.

Rising electricity demand from data centers and electrification strained PJM’s recent capacity auction, signaling a reliability crisis, per outgoing FERC Chairman Mark Christie. FERC approved standards for wind and solar generators to stay connected during grid disturbances, enhancing stability as inverter-based power grows. However, expanding utility infrastructure is driving up electricity prices, with utilities pushing data centers to bear more investment risk. Tech companies resist, arguing they should only pay their fair share, highlighting the urgent need for more low-cost generation.

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