{"id":87869,"date":"2026-08-20T14:14:39","date_gmt":"2026-08-20T13:14:39","guid":{"rendered":"https:\/\/www.lse.ac.uk\/granthaminstitute\/?post_type=news&p=87869"},"modified":"2026-08-20T16:01:04","modified_gmt":"2026-08-20T15:01:04","slug":"who-pays-for-ai-data-centres-electricity-costs-and-regional-energy-equity","status":"publish","type":"news","link":"https:\/\/www.lse.ac.uk\/granthaminstitute\/news\/who-pays-for-ai-data-centres-electricity-costs-and-regional-energy-equity\/","title":{"rendered":"Who pays for AI? Data centres, electricity costs and regional energy equity"},"content":{"rendered":"\n

As data centres proliferate across the globe, underpinning the AI boom, the central issue for policymakers is now shifting from how to power these centres, to who pays for the grid capacity, electricity generation and backup supply they demand. Yanxi Zhou and Tao Zou explore how concerns around the costs of data centres and their fair distribution should be addressed, drawing on examples from China, the UK and US.<\/p>\n\n\n\n

Britain’s VAT cut and the hidden cost of the data centre boom<\/h2>\n\n\n\n

When UK Prime Minister Andy Burnham recently announced<\/path><\/svg><\/a> that value added tax (VAT) on household electricity bills would be reduced from 5% to zero from 1 October 2026, the policy was framed as immediate relief on winter bills. However, the VAT cut coincides with a deeper shift: AI data centres are reshaping electricity systems and demand worldwide. In early 2025, the UK government estimated<\/path><\/svg><\/a> that data centre electricity consumption in the UK will increase fourfold by 2030. To understand why this matters, we must look beyond the electricity costs and into the machinery that sets prices in the first place.<\/p>\n\n\n\n

The scale of the new demand from data centres<\/h2>\n\n\n\n

Across the globe, data centres today consume around 415 terawatt-hours (TWh) of electricity annually, about 1.5%<\/path><\/svg><\/a> of global electricity demand. This could more than double to 945 TWh<\/path><\/svg><\/a> by 2030 under the base case. AI-optimised facilities are expected to account for much of the increase, with accelerated servers responsible for nearly half of the net growth.<\/p>\n\n\n\n

The supply pressure is concentrated in particular countries, with China and the US already accounting for more than half<\/path><\/svg><\/a> of global data centre electricity use. Data centre electricity use in the US could reach 325–580 TWh<\/path><\/svg><\/a> by 2028 and will account for 20%<\/path><\/svg><\/a> of total US electricity demand by the end of the 2030s. Meanwhile, China’s computing-related demand could approach 800 TWh<\/path><\/svg><\/a> by 2030, around 6% of national electricity use. In the UK, data centres currently consume about 2.5%<\/path><\/svg><\/a> of grid electricity, but proposed AI-driven projects could raise this to 8.8%<\/path><\/svg><\/a> of national demand by 2030, requiring up to 50 gigawatts (GW<\/path><\/svg><\/a>) more than the country’s current peak demand. <\/p>\n\n\n\n

Overall, the International Energy Agency (IEA) expects<\/path><\/svg><\/a> data centres to drive almost half of global electricity demand growth this decade. A more aggressive estimate suggests global data centre demand could reach nearly 1,935 TWh by 2033, while US facilities could consume up to a fifth of<\/path><\/svg><\/a> national generation by 2035, mostly driven by training and inference workloads. These figures underline that the huge expansion in AI use and applications is becoming a major challenge for national electricity systems.<\/p>\n\n\n\n

Why the grid is starting to charge everyone else<\/h2>\n\n\n\n

When a large new load such as an AI data centre arrives on an electricity grid faster than local generation or transmission capacity can expand, it can push up wholesale prices for everyone drawing from that grid. It is estimated that existing US data centres have already lifted wholesale electricity prices nationally by 2% to 6%<\/path><\/svg><\/a> on average, with sharper effects in grid regions most exposed to AI activity: AI demand significantly increases wholesale electricity prices by up to 25% <\/path><\/svg><\/a>in American Electric Power zones of the PJM grid<\/path><\/svg><\/a>, such as Virginia. Under a scenario when most data centres get built and run at high capacity, wholesale electricity prices could climb by around 50%<\/path><\/svg><\/a> by 2028.<\/p>\n\n\n\n

The effect is already visible: in the largest electricity grid in the US, operated by PJM Interconnection, wholesale prices for a single megawatt-hour have risen from $77.78 to $136.53 over the past year – a 76%<\/path><\/svg><\/a> jump.<\/p><\/blockquote><\/figure>\n\n\n\n

Three mechanisms explain this surge in electricity prices:<\/h3>\n\n\n\n