AI Data Centers Outrun U.S. Grids, Straining Capacity

Research firm Wood Mackenzie reports that power demand from large AI data centers is growing faster than U.S. transmission systems can be upgraded. The firm estimates full transmission build-outs are five to 10 years away, leaving a gap between when new loads arrive and when the grid can deliver unconditional service.

In the PJM regional grid, Wood Mackenzie identified 78 gigawatts of committed data center load against 36 gigawatts of accredited generation capacity in the interconnection pipeline. Nationwide, the firm projects the grid will require about 16.4 gigawatts of new gas capacity per year through 2035 to meet projected demand, compared with roughly 4 gigawatts added per year from 2023 to 2025.

Data center operators are pursuing colocated generation and flexible interconnection arrangements to secure power faster than transmission upgrades can be built. Wood Mackenzie counts more than 90 gigawatts of colocated generation in U.S. interconnection pipelines, but the firm says large on-site power projects are feasible mainly for the largest, well-capitalized hyperscalers and face significant engineering and regulatory hurdles.

The report lists several technical challenges for on-site generation. AI workloads can cause near-instantaneous swings in demand that strain reciprocating engines and gas turbines. Lithium-ion batteries can smooth rapid fluctuations but have limited lifespans and require very fast response times that rely on technologies not yet widely commercialized. Irregular power draw from cooling systems and GPUs can introduce power harmonics that increase equipment wear. Sub-synchronous oscillations are also highlighted as a risk to local generators and to stability on the wider transmission system.

Wood Mackenzie describes flexible interconnections as a short-term measure rather than a long-term solution. Grid operators expect transmission upgrades to provide firm, unconditional service to large loads, but the firm warns that nearly $100 billion in planned transmission investments could be allocated across all ratepayers under current cost allocation methods. That distribution of costs could raise affordability and political issues if data center demand does not materialize as forecast.

Market signals add another barrier to new generation. In Texas, wholesale prices currently sit between about $30 and $40 per megawatt-hour, while Wood Mackenzie estimates new gas capacity would require market revenues near $78 to $100 per megawatt-hour to be economic.

The firm notes changes in siting strategies among data center companies, with some concentrating facilities where land and power are more accessible and others expanding into emerging markets. Research cited by Wood Mackenzie found that delivered power capacity across Europe, the Middle East and Africa fell to 850 megawatts in the first three quarters of 2025, down 11% from the prior year.

Ben Hertz-Shargel, global head of grid transformation and large loads at Wood Mackenzie, warned: “The power sector is fixated on data center flexibility, but that is not the end-game for grid operators or data center operators. Firm grid service is the goal, backed by new transmission superhighways.” Chris Seiple, vice chairman for energy transition and power and renewables, noted: “Load growth and affordability are in direct opposition in the deregulated markets. If prices rise to the level necessary to incentivize new generation, it will raise prices for all customers, prompting a political outcry.”