A radical proposal suggests making residential electricity free up to a certain cap by increasing industrial and commercial rates by 50%. This would alleviate household costs and incentivize large companies to build their own private power systems, increasing the nation's total energy supply.
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Instead of socializing costs, some utilities are charging data centers premium rates. This revenue not only covers new infrastructure costs but, in some cases like Georgia, is used to provide bill credits or reductions to existing residential and commercial customers, effectively subsidizing them.
Beyond paying fair rates for data centers, tech giants can solve the PR and grid-load problem by creating tax-equity vehicles to fund solar panels and battery storage for local homeowners. This ensures community buy-in and builds energy resilience.
Over the last 20 years in New England's restructured market, the primary driver of higher consumer electricity bills wasn't the cost of power itself, which fell 50% inflation-adjusted. Instead, the cost of transmission and delivery infrastructure skyrocketed by 900%, fundamentally shifting the composition of consumer bills.
To overcome energy bottlenecks, political opposition, and grid reliability issues, AI data center developers are building their own dedicated, 'behind-the-meter' power plants. This strategy, typically using natural gas, ensures a stable power supply for their massive operations without relying on the public grid.
The race to build power infrastructure for AI may lead to an oversupply if adoption follows a sigmoid curve. This excess capacity, much like the post-dot-com broadband glut, could become a positive externality that significantly lowers future energy prices for all consumers.
Rather than viewing the massive energy demand of AI as just a problem, it's an opportunity. Politician Alex Boris argues governments should require the private capital building data centers to also pay for necessary upgrades to the aging electrical grid, instead of passing those costs on to public ratepayers.
For many individuals in the developed world, energy functions like Wi-Fi: it "comes out of the wall" for a fixed monthly cost that is a small fraction of their income. The marginal cost of consumption is so low that it is effectively a post-scarcity resource for personal use cases.
The cost of electricity has two components: making it and moving it. Generation ("making") costs are plummeting due to cheap solar. However, transmission ("moving") costs are rising from aging infrastructure. This indicates the biggest area for innovation is in distribution, not generation.
If homeowners and corporations begin generating their own power via solar, storage, and colocation, it could trigger a crisis for traditional utilities. Their entire business model, based on a centralized grid and rate base, would be at risk, making them a massive potential short for investors.
Instead of forcing AI companies to subsidize electricity bills directly, a more effective solution is a broad-based corporate minimum tax. This provides the public capital needed for massive infrastructure projects, like upgrading the national power grid to handle increased demand from data centers, without complex, targeted regulations.
