We will make electricity so cheap that only the rich will burn candles. – Thomas A. Edison
We will make electricity so cheap that only the rich will burn candles.
Electricity was once the invisible enabler of digital progress. Now it is becoming a key constraint. This week’s chart compares industrial electricity prices in the five states with the largest concentration of data centers – Virginia, Texas, California, Illinois and Ohio – to the national average. Beginning in late 2022, around the release of ChatGPT 3.5 – exactly three years ago this week – the two lines split apart, showing a clear divergence in electricity costs. Prices in the data center states have climbed about 42% over five years, compared with 26% nationally. The result is what could be called an “AI Power Premium” – a sign that digital demand is starting to strain the energy system.
Data centers can now consume as much power as small cities, and they’re being built faster than new generation or transmission can come on line, forcing utilities to raise prices to fund new capacity. It’s a simple imbalance: Data centers can be built in a year, but it can take several years to permit and construct the power plants, transmission lines and even the critical parts needed to upgrade them.
While the corporate-led AI investment boom is driving higher electricity prices, households are beginning to feel the strain. Across those same five states, household electricity prices have risen nearly 7% annually since 2022, compared with 5.5% nationally, while the electricity component of the Consumer Price Index has climbed 36% since 2020, compared with a 25% rise in overall inflation. What starts in the industrial sector eventually reaches homes and small businesses as utilities recover rising costs. Rising electricity costs risk deepening the strain on households already burdened by pandemic-era inflation and, before long, could show up at the ballot box as the effects of massive corporate investment begin to shape local politics.
Much of the grid built in the 1970s and 1980s is wearing out, and utilities are spending three times more on upgrades than in 2005, pushing bills higher even as fuel prices remain steady.
The macroeconomic story is that electricity, once stable and cheap, is behaving more like a constrained resource. For decades, technology was a deflationary force. Now, the growth of digital infrastructure – data centers, chips and cloud computing – is producing a new inflation channel. The same forces that drove the cost of information down are now driving the cost of energy up. For investors and policymakers, the message is clear: When innovation outpaces infrastructure, costs don’t vanish – they just move.
States competing for AI, chip and manufacturing projects are learning that cheap electricity was part of their advantage, and that advantage is fading. The lines in the chart, once parallel, now diverge – the digital economy on one path, the physical economy on another. The AI revolution might be driven by technology, but it runs on electricity – and those electrons are getting expensive.
Between the Lines is a weekly blog by DoubleLine Portfolio Managers Sam Garza, Joseph Mezyk and Quant Analysts Fei He, CFA and Sunyu Wang that breaks down topical macro and market issues. For questions or suggestions please e-mail us at betweenthelines@doubleline.com. The views and opinions expressed herein are those of the authors and do not necessarily reflect the views of DoubleLine Capital LP, its affiliates or employees.
