The so-called “AI race” is propelling stock markets to new highs even as geopolitical turbulence rattles investors. Artificial intelligence may prove to be the rare technological revolution capable of generating real growth despite the headwinds of tariffs and misguided industrial policy. Yet the data centers powering this next generation of innovation have become a flashpoint for public anxiety. Maine has outright banned new large data center construction, and average Americans are increasingly convinced that these facilities are to blame for rising electricity bills.
The statewide data, however, tell a different story. Newly published research finds no meaningful link between the number of data centers in a state and its electricity prices and points instead to a far less glamorous culprit: bad state energy policy.
A March 2026 study from the Institute for Energy Research (IER) examined whether data centers are responsible for rising electricity prices across the United States. The answer, based on state-level data, is no. Across all 50 states, there is no statistically significant relationship between the number of data centers and electricity prices. The top ten data center states averaged 14.46 cents per kilowatt-hour in 2025, virtually identical to the 14.39 cents average across all other states.
Perhaps the study’s most counterintuitive finding is its strongest: states where electricity sales grew faster actually paid less for electricity. High-growth states averaged a 20 percent price increase from 2015 to 2025, while low-growth states averaged nearly double that at 39.4 percent. Unlike most goods, electricity is priced by spreading high fixed costs like transmission lines, generation capacity, and long-term contracts across every kilowatt-hour consumed, meaning the more power that flows through the grid, the cheaper each unit becomes in the long run. Data centers, by driving demand up, actually spread fixed grid costs across more kilowatt-hours, which results in a per-unit rate decrease for everyone.
So why are so many Americans convinced otherwise?
Because in the short run, at the local level, the story is more complicated. A Bloomberg analysis of wholesale electricity prices across 25,000 grid nodes found that prices have risen as much as 267 percent since 2020 in areas near major data center clusters. More than 70 percent of nodes recording price increases were located within 50 miles of significant data center activity.
In these regions, data centers create a surge in demand on local grids. When transmission capacity is constrained and new generation has not yet come online, prices spike. Those higher wholesale costs can then filter into retail bills, at least in the short run, and local consumers bear the brunt of this regional electricity demand.
The discrepancy in these two studies indicates a timing problem. The long-run economics favor more demand, but the short-run reality is that infrastructure takes years to build, and consumers near data center hubs can be left paying for that gap. The IER study measures retail prices averaged across entire states; Bloomberg measured wholesale prices at specific grid nodes near data center hubs.
State averages mask local effects. Northern Virginia’s price pressure gets diluted when blended with rural Appalachia, for example. Both findings can be simultaneously true: data centers are not driving broad statewide price divergences, but they can create localized grid strain where infrastructure and regulatory frameworks have failed to keep pace with demand.
That distinction matters enormously for policy. Concentrated price spikes are not evidence that data centers are inherently incompatible with affordable electricity; they are evidence that grid infrastructure and cost allocation rules haven’t kept up. Oregon’s POWER Act, which requires large electricity users to bear the costs of infrastructure built specifically for them, is a model worth watching. By creating a separate rate class for data centers and requiring long-term contracts so they pay for the grid upgrades they demand, the law moves closer to a core market principle — prices that reflect true costs. However, it still relies on regulators rather than competitive markets to set those prices. These are targeted, incremental steps toward aligning prices with actual costs, far preferable to blunt restrictions that distort markets and stifle investment.
The deeper problem, as a growing body of research makes clear, is state energy policy itself. A Charles River Associates report found that rate increases are heavily driven by local regulatory conditions, particularly policy environments in California and the Northeast. A Lawrence Berkeley National Laboratory study identified renewables portfolio standards, particularly in states with costly incremental renewable supplies, as a consistent driver of rate increases. The common thread is that electricity prices are fundamentally a product of institutional design, not data center headcounts.
America is not going to win the AI race by making it harder to build the infrastructure AI requires. The moment calls for the opposite instinct: streamlining permitting for new generation and transmission, updating interconnection queues, ensuring large electricity users pay for their full cost to the grid, and getting out of the way of the demand growth that tends to lower per-unit costs over time. The appropriate response to rising electricity costs near data center hubs is to reduce barriers to grid expansion and allow energy supply to scale alongside demand, preserving both affordability and competitiveness.
