How data center power demand could help lower electricity prices

A new analysis by Lawrence Berkeley National Laboratory and Brattle Group challenges the conventional wisdom that rising electricity prices, which increased over 5% from September 2024-2025, are primarily driven by data center demand. The study suggests that data centers can actually exert downward pressure on rates by spreading fixed infrastructure costs when utilities have spare capacity, though new investments for capacity constraints could raise costs, often recovered directly from large customers. More significant drivers of increasing electricity costs include the replacement of aging infrastructure, rapidly rising equipment costs post-pandemic, expenses related to severe weather events and risk mitigation (e.g., wildfire prevention), and, in some instances, renewable portfolio standards that mandate procurement above market rates.

Analysis

The Consumer Price Index indicated a >5% increase in average electric bills from September 2024 to September 2025, outpacing general inflation. This rise challenges the prevailing belief that data center growth is the primary driver, according to a new analysis by Lawrence Berkeley National Laboratory and Brattle. The overall sentiment surrounding electricity prices is mildly negative, reflecting these increases.

The analysis suggests data centers can paradoxically exert downward pressure on rates by distributing fixed infrastructure costs when utilities possess spare capacity. However, if new capacity investments are required due to constraints, costs may increase, though utilities are implementing new rate structures to recover these incremental expenses directly from large customers like data centers.

More significant drivers of rising electricity costs include the necessity to replace aging transmission and distribution infrastructure, which is compounded by rapidly escalating equipment costs post-pandemic. Furthermore, expenses linked to severe weather events, such as repairs and risk mitigation efforts like California's wildfire prevention, contribute substantially to rate increases.

While low-cost wind and solar can decrease prices, certain renewable portfolio standards mandating procurement above market rates can introduce upward pressure, reflecting policy decisions to mitigate broader climate change costs. This highlights the complex interplay of economic, environmental, and technological factors influencing energy markets.

Key Decisions for Investors

• Investors should evaluate utility companies' capital expenditure plans and rate base growth potential, particularly those focused on replacing aging infrastructure and managing rising equipment costs.
• Assess regional utility exposures to severe weather events and climate-related risk mitigation expenses, as these represent significant and growing drivers of rate increases, especially in vulnerable areas like California.
• Monitor utilities' strategies for accommodating large industrial loads, such as data centers, focusing on their existing capacity and the effectiveness of new rate structures designed to recover incremental costs directly from these customers.
• Consider the impact of state-level renewable energy policies on utility revenue and rate structures, distinguishing between market-driven renewable adoption and mandated renewable portfolio standards that may lead to higher costs.