How AI is Impacting Electricity Demand and Energy Costs for Retailers

While artificial intelligence isn’t new, it's certainly newsworthy. That’s largely thanks to almost daily headlines calling attention to just how much energy AI demands.

Earlier this year, the International Energy Agency (IEA) released its forecast for global energy use through 2026, including, for the first time, projections for power consumption related to AI, data centers and cryptocurrency. The organization estimates that demand for these uses could double by 2026. Of course, AI isn’t the only driver of the massive uptick in demand we’ve seen in the last few decades. There’s been a push from the government to electrify more things including vehicles, homes and buildings. It’s been estimated that global energy consumption will increase by nearly 50 percent by 2050, driven in large part by economic growth in developing countries.

Overall, this rising electricity demand could have a significant impact on energy prices due to several key factors that are at play:

1. Supply and demand dynamics: As demand rises and the supply-demand balance tightens, market volatility is more likely, as is scarcity pricing. This is particularly true during peak demand periods.
2. Fuel costs: The price of electricity is influenced by the cost of the fuels used to generate that electricity, and as demand for these fuels also increases, prices are likely to climb. While the grid continues to transition from fossil fuels to renewables, natural gas producers are planning for a significant spike in demand over the next decade as renewables alone would struggle to meet AI-driven demand.
3. Infrastructure investments: To meet rising electricity demand, utilities will need to invest in costly investments in new power generation capacity, transmission lines and distribution infrastructure, as well as smart grid technology to support rising power consumption. Rising electricity demand often coincides with a push toward renewable energy sources, the integration of which requires additional infrastructure investment.

It's important to note that the specific impact of rising electricity usage on energy prices depends on a variety of factors, including the energy mix, market structure and government policies. So, what does this rising energy demand mean for businesses and their bottom lines?

Why Businesses Should Focus on Energy Efficiency

Energy efficiency measures and demand-side management programs can help mitigate price increases by reducing overall electricity demand. With market volatility, weather and rising energy demand in the U.S. beyond your business’s control, focus on what you can manage. By reviewing the data showing how (and when) your company’s facilities use energy, you can develop an efficiency plan that might help lower overall energy spending.

The confluence of rising energy demand and the transition to cleaner energy sources highlights the critical role of efficiency and being smarter about our energy consumption.

Tom Roberts is the director, CES engineering, systems and special projects at IGS Energy, an independent retail natural gas and electric supplier.