By Nida Çakır Melek & Alex Gallin After years of stagnant growth, U.S. electricity demand recently surged. This increase was driven in part by the commercial sector, particularly the rapid expansion of data centers and the adoption of artificial intelligence (AI). The surge is expected to continue, signaling a shift toward a more electrified economy, with significant implications for economic competitiveness and energy infrastructure.
After years of minimal growth, U.S. electricity demand recently began to accelerate. For a decade before the pandemic (2010–19), growth in electricity demand was nearly flat. Although population growth and the economic recovery from the Great Recession increased electricity use during this period, these increases were partly offset by widespread adoption of energy-efficient technologies such as LED bulbs and modern HVAC systems.
Over the past three years, however, electricity demand has grown on average 1.3% per year – more than twice the average rate during 2010– 19. Moreover, this surge is expected to continue, with the projected average growth rate for power demand exceeding rates seen in the two decades before the Great Recession.
A key driver of this recent surge has been the commercial sector. Commercial electricity demand accounted for 60% of growth in total U.S. power demand during 2021–23. This growth has been concentrated in Texas, Virginia, and North Dakota, while commercial electricity use in the rest of the United States has remained relatively stable.
North Dakota has experienced the fastest relative growth in commercial electricity demand, partly due to the establishment of large computing facilities supported by the state’s abundant and competitively priced energy sources. Virginia has emerged as a major hub for data centers, driven in part by its access to a high-capacity fiber-optic network and to subsea fiber cables that facilitate fast and reliable data transmission. And Texas, one of the most densely populated states with data centers, has also seen significant demand growth due in part to its lower energy costs, robust economic activity, and population growth.
Near-term forecasts for U.S. electricity demand have been revised up substantially. The 2024 forecast rose from 1.3% in the January 2023 Energy Information Administration report to 2.6% in the September 2024 report. The 2025 forecast has been revised even more dramatically: the demand growth forecast in the September 2024 report is more than eightfold that of the January 2024 report.
Forecasts for both years are well above 2010–19 average growth. These upward revisions underscore the uncertainty in projecting electricity demand, particularly as AI adoption and data center growth ramp up.
The cross-industry adoption of generative AI – which requires data centers for the necessary computational power and storage capacity – has accelerated this trend. For example, data retrieved from Bloomberg ESG show that companies such as Google and Microsoft more than quadrupled their electricity use from 2016 to 2023, citing expansions in AI and data centers among the drivers of their increased electricity consumption.
This boom, combined with other trends such as industrial onshoring and clean energy investments, is contributing to a marked increase in forecasts of electricity use. In some states, those investments are already driving up demand, with further increases likely as more projects come online.
Higher electricity demand signals a more electrified economy.
Overall, U.S. electricity intensity has been declining since the early 1990s. However, this trend may reverse if recent demand growth continues. For example, a high-demand growth scenario from the National Renewable Energy Laboratory (NREL) suggests that electricity intensity could increase by 23% by 2040, driven by the widespread adoption of electrification technologies.
This increase would represent a significant departure from the historical trend, which implies a 50% decline in electricity intensity over half a century and highlights the potential for a more electricity- intensive economy.
The surge in U.S. electricity demand, particularly within the commercial sector, underscores the ongoing transformation toward a more electrified economy. The integration of advanced technologies such as AI, automation, and data centers into the U.S. economy is energy- intensive but important for maintaining economic competitiveness.
Countries that efficiently power these technologies are likely to lead in innovation and productivity gains. To fully realize the potential benefits of this electrification, substantial investments in energy infrastructure may be necessary. This includes expanding transmission and distribution networks, modernizing the grid, and increasing renewable energy capacity.
These investments will not only support growing electricity demand but also ensure that the U.S. economy can continue to grow competitively and sustainably.
Nida Çakır Melek is a senior economist at the Federal Reserve Bank of Kansas City. Alex Gallin is a research associate at the bank.