Problem
Research questions and friction points this paper is trying to address.
data centers
electricity rates
causal evidence
economies of scale
power system costs
Have Data Centers Raised Your Electric Bill? Causal Evidence from the United States
🤖 AI Summary
This study investigates whether the expansion of data centers has driven up residential electricity prices in the United States. Leveraging data from 2015 to 2024 and employing an instrumental variable approach, the paper identifies the causal effect of data center electricity demand on retail electricity rates. It further explains this relationship through the fixed-cost structure of power systems and economies of scale across customer classes. The analysis provides the first causal evidence that, under certain conditions, increased data center demand can lower average retail electricity prices by spreading fixed costs over a larger consumption base. Empirical results indicate that data center growth has led to a modest decline in average U.S. retail electricity prices, confirming the presence of significant economies of scale in generation, transmission, and distribution.
📝 Abstract
We estimate that data centers caused average retail electricity rates to fall modestly in the United States from 2015 to 2024 using an instrumental variables approach. Despite prevailing sentiment, the finding is consistent with economic reasoning: existing large power system fixed costs, economies of scale in transmission and distribution, and declining unit costs for generation imply that durable demand growth lowers average prices. We find patterns of economies of scale for transmission, distribution, and generation costs as well as within and across retail customer classes. We caution that future supply constraints could reverse the effect.
Innovation
Methods, ideas, or system contributions that make the work stand out.
instrumental variables
economies of scale
data centers
electricity pricing
causal inference
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