2025 Projection for AI's Impact on Your Energy Bill

Artificial intelligence (AI) is no longer a futuristic concept; it's a present-day reality, reshaping industries and driving unprecedented innovation. From streamlining operations to powering sophisticated consumer applications, AI's capabilities are rapidly expanding. However, this technological revolution has a significant, and often underappreciated, consequence: a dramatic increase in energy consumption. As businesses integrate AI-powered solutions, the demand for electricity is surging, placing upward pressure on prices, particularly in deregulated energy markets like NYISO, ISO-NE, and PJM.

At RateWise, we're deeply involved in analyzing the evolving energy landscape, and the projections for 2025 highlight the urgent need for proactive energy management strategies. This article will delve into the why behind these projected price increases and underscore the importance of taking action now.

The energy footprint of AI is substantial, and it's growing at an exponential rate. Training and operating complex AI models, especially the generative AI systems that power many cutting-edge applications, require immense computational power. This power translates directly into electricity consumption. Consider the sheer scale of data centers, the hubs of AI processing. McKinsey forecasts that US data centers will consume a staggering 224 terawatt-hours (TWh) of electricity in 2025, accounting for 5.2% of the nation's total power demand. Deloitte's global projection for data center energy use is even higher.

The specialized hardware essential for AI operations, such as graphics processing units (GPUs) and central processing units (CPUs), are notoriously energy-intensive. The constant increase in AI computing capacity, measured in floating-point operations per second (FLOPS), has been nothing short of exponential since the advent of generative AI. Goldman Sachs estimates that AI will constitute a remarkable 27% of total data center power demand by 2027. These are not distant projections; the impact is being felt in energy markets today.

Deregulated electricity markets, in contrast to their regulated counterparts, are particularly susceptible to these demand-driven price fluctuations. In a deregulated market, the price of electricity is fundamentally determined by the forces of supply and demand. Unlike regulated markets, where utilities operate under the oversight of public commissions and have more controlled rates, deregulated markets offer less insulation from market volatility.

When demand surges, as it is with the proliferation of AI, prices tend to rise accordingly. Several factors inherent in deregulated markets further amplify this effect. Marginal pricing, where the most expensive generator needed to meet the current demand sets the overall price, means that even a small increase in demand can trigger a significant price jump. Transmission constraints, or limitations in the grid's capacity to deliver power, can also create localized price spikes, particularly in areas with high concentrations of data centers. The EIA forecast a 7% average increase in wholesale electricity, but that is just a general estimate, AI has the potential to push prices even higher.

Adding fuel to the fire, the EIA also projects a 24% rise in the cost of natural gas, a primary fuel source for electricity generation in many regions, further contributing to the upward pressure on prices. The national trend of rising AI-driven energy demand is playing out with distinct characteristics in three key deregulated markets: NYISO, ISO-NE, and PJM. Each region faces unique challenges and pressures, making a localized understanding of the energy landscape crucial for businesses.

NYISO (New York Independent System Operator): New York presents a complex picture. While the rapid expansion of AI is certainly a factor, data centers are a primary driver of short-term electricity demand growth in the NYISO territory. Looking further ahead, the electrification of buildings and transportation is expected to be a major contributor to longer-term demand increases. As part of the broader Northeast region, NYISO is subject to the general upward trend in wholesale electricity prices, as forecast by the EIA. This combination of factors – increasing data center demand in the near term and broader electrification trends in the long term – creates a challenging environment for energy consumers. Proactive planning and strategic energy management are essential to navigate these evolving dynamics.

ISO-NE (ISO New England): New England faces a more immediate and pronounced price impact. The EIA forecasts a substantial 16% increase in wholesale electricity prices for the ISO-NE region in 2025. This is compounded by a projected 17% increase in overall electricity demand between 2024 and 2033, driven in part by electrification initiatives. While renewable energy sources are growing in the region, the pace of demand growth, fueled by factors including AI and data center expansion, is putting significant strain on the grid. Businesses in New England need to be particularly vigilant about their energy costs and explore strategies to mitigate the anticipated price hikes.

PJM Interconnection: The PJM region, encompassing an area of 13 states in the Mid-Atlantic and Midwest, provides a stark illustration of the potential consequences. PJM has already experienced a tenfold increase in capacity auction prices, a direct result of rising demand, with a significant portion attributed to data centers. Furthermore, PJM has announced a sweeping 20% increase in electric power rates, effective June 1, 2025. Projections indicate an 8% rise in peak demand within the PJM territory by 2029, and data centers, increasingly powered by AI workloads, are explicitly identified as a key contributor. Market experts at Morgan Stanley even suggest the possibility of even higher prices in future PJM capacity auctions. These are not mere predictions; they are concrete indicators of a dramatic shift in the energy landscape, demanding immediate attention from businesses operating in the region.

While mitigating factors, such as the continued growth of renewable energy sources and ongoing advancements in energy efficiency technologies, offer some long-term promise, their immediate impact in 2025 is likely to be overshadowed by the rapid and substantial increase in AI-driven energy demand. The reality is that businesses, especially those operating in NYISO, ISO-NE, and PJM, must prepare for higher electricity costs.

At RateWise, we specialize in helping businesses in NYISO, ISO-NE, PJM, and other deregulated markets across the country develop customized energy plans to mitigate risk and optimize costs. This includes exploring strategies like reverse energy auctions, where suppliers compete to offer you the best possible rates, demand response programs that reward you for reducing energy usage during peak periods, and customized pricing solutions tailored to your specific needs and risk tolerance. Proactive energy management is no longer an optional extra; it's a critical component of business success in this evolving energy landscape.