Data Center Growth Drives Billions in Grid Upgrade Costs for U.S. Utilities

Rising demand from data centers is prompting utilities and regulators across the United States to invest heavily in new transmission infrastructure, with most costs passed on to general ratepayers rather than the data center operators themselves.

In 2024, utility customers in seven states within the PJM Interconnection paid around $4.4 billion for upgrades to connect new data centers. Over 150 local transmission projects aimed at serving these facilities were initiated between 2022 and 2024, with 130 projects approved in 2024 alone and costing approximately $4.36 billion. Only about 5 percent of these project costs were paid directly by the data center customers, while the remaining 95 percent were distributed among all retail electricity users.

California is also seeing rapid growth in electricity demand from data centers. The Little Hoover Commission reported that these projects could add about 10 gigawatts of new demand over the next decade, which may require billions of dollars in additional grid infrastructure. In response, the Commission recommended establishing a special electricity rate category for very large power users, requiring them to prepay for grid upgrades and contribute to wildfire safety expenses.

In Silicon Valley, Santa Clara’s municipal utility is investing $450 million in grid improvements to support data center operations, with completion planned by 2028. Meanwhile, Northern Virginia, recognized as the nation’s largest data center market, has experienced prolonged delays in connecting new facilities due to limited high-voltage infrastructure.

What the numbers show

• Utility customers in PJM states paid $4.4 billion for transmission upgrades in 2024
• 130 local transmission projects for data centers were approved in PJM states in 2024, totaling about $4.36 billion
• Santa Clara’s utility is investing $450 million in grid upgrades for data centers, scheduled for completion by 2028
• New high-voltage transmission lines in the U.S. typically cost $2.5–$6 million per mile

Federal authorities have also taken steps to address the infrastructure needs created by data center expansion. The U.S. Department of Energy offered a $1.6 billion loan guarantee to AEP Transmission to upgrade nearly 5,000 miles of transmission lines across five Midwest states. In another action, federal officials announced a $26.5 billion loan to Georgia Power and Alabama Power for new natural-gas power plants, transmission lines, and upgrades to existing facilities, all driven by increased data center demand.

Georgia Power plans to boost its power capacity by 50 percent to accommodate the growing needs of data centers. Construction costs for this expansion are estimated at $16.3 billion, with total payments from customers projected to reach between $50 billion and $60 billion over time, including interest and profit. An agreement between Georgia Power and regulatory staff states that, after a rate freeze ends in 2028, revenue from new customers will be used to lower residential bills by at least $8.50 per month through 2031.

Some data center operators, such as Amazon, generally pay for their own electricity usage and may generate surplus revenue for utilities. For a typical 100 megawatt Amazon data center, this surplus was estimated at $3.4 million in 2025 and is projected to reach $6.1 million by 2030, which utilities can use for grid modernization.

Utilities are also evaluating alternatives to traditional transmission projects, including the use of batteries and grid-enhancing technologies. These non-wires solutions can often be implemented more quickly and at a lower cost than constructing new high-voltage lines.

* This article is based on publicly available information at the time of writing.