The demand for data centers, both in the United States and abroad, has been accelerating at an unprecedented pace, driven largely by the rapid expansion of artificial intelligence (AI) and other digital applications. AI-related workloads in particular are fueling the need for greater and more reliable computing power and storage capacity.
Current projections indicate a 22% annual growth rate in overall data center capacity from 2023 to 2030, with generative AI workloads increasing at an even faster rate of 39% annually. Notably, advanced AI capacity as a percentage of total data center demand is expected to rise from less than 40% in 2023 to over 60% by 2030, representing a 33% annual growth rate.
This increasing reliance on AI and cloud computing will have significant implications for energy consumption. In 2022, data centers worldwide consumed an estimated 415 terawatt hours (TWh) of electricity, which exceeded the total power usage of all of Great Britain for that year. By 2026, global data center consumption is expected to nearly double to 835 TWh, approaching Japan’s total national energy usage. The United States, which currently has the highest concentration of data centers in the world, has also seen a sharp increase in electricity demand, with projections ranging between 300 to 500 TWh annually by 2030, depending on efficiency improvements and technological advancements.
This surge in data center demand is largely driven by the rapid growth of compute instances—virtual environments powering cloud services and AI applications. Energy consumption has skyrocketed as generative AI workloads continue to expand, with estimates showing that processing one billion daily queries for a single generative AI program could cost $140 million annually in electricity alone.
Considering the vast array of generative AI programs and other compute-heavy applications experiencing explosive growth, the demand for data center capacity is projected to rise sharply in the coming years. Moreover, even if new AI models use less energy (such as Deepseek), the general trend toward increased energy demand is expected to continue, as reduced energy demand may create new use cases for AI that have not been previously considered.
Meeting the rapidly increasing energy demands of data centers requires significant investment in new infrastructure, grid modernization, and innovative energy procurement strategies. As data center capacity expands, securing reliable and scalable power sources has become a top priority for developers and operators.
Traditional energy supply models, such as power purchase agreements (PPAs), physical contracts for the delivery of power, and virtual power purchase agreements (financial contracts that convey the environmental attributes of a project to the buyer), remain widely available options for data center companies seeking to contract directly with energy providers. Specialized utility tariffs, based on large customer or “green” tariffs, are also emerging as a model to facilitate data center operators’ interconnection to the grid and access to energy resources with specific attributes, while allowing the utility to insulate other customers from the rate impacts of that buildout.
Integrating new power sources into the grid to meet data center demand also presents a range of regulatory and developmental challenges. Generation interconnection constraints, lengthy transmission development processes, and supply chain disruptions can delay the deployment of essential infrastructure needed to get new energy resources online. In addition, large-scale electric users, like hyperscale data centers, often require customized grid solutions to mitigate these bottlenecks.
One approach gaining traction to mitigate some of these barriers is generator co-location, wherein data centers are strategically sited alongside power generation facilities in so-called “behind-the-meter” arrangements that could bypass some of the challenges described above. Operators considering co-location may also need to address attendant behind-the-meter issues, such as the need for on-site backup generation and energy storage, to ensure uptime and ease grid dependency.
Regulatory oversight is also evolving to address these challenges. Federal agencies and state governments are considering measures to balance energy demand with grid stability, while ensuring non–data center customers are not disproportionately impacted by rising infrastructure costs. Amid the sector’s growth, data center operators will need to navigate an increasingly complex regulatory landscape to secure sustainable and resilient energy solutions.
As data centers face increasing energy demands, nuclear power has emerged as a viable long-term solution. With an average capacity factor of 93%, nuclear energy provides a highly reliable and carbon-free power source, aligning with the sustainability goals of many large data center operators. The United States currently operates 93 nuclear reactors across 54 power plants, supplying approximately 19% of the nation’s annual electricity. Given the rising energy needs of AI-driven workloads, the dependability and scale of nuclear power makes it an attractive option for ensuring uninterrupted data center operations.
In recent years, data center companies have begun forming strategic partnerships with nuclear energy providers, with announcements of new collaborations surging in the latter half of 2024. Major technology companies and firms have announced agreements to procure nuclear power, including investments in small modular reactors (SMRs)—compact, scalable nuclear plants designed to offer lower capital costs and greater flexibility.
In parallel, efforts are underway to restart previously shut down nuclear plants to bolster energy capacity. Facilities such as Palisades in Michigan, Three Mile Island Unit 1 in Pennsylvania, and Duane Arnold in Iowa have announced plans to resume operations to help meet the growing demand for clean, large-scale power.
The US Nuclear Regulatory Commission oversees licensing processes for both new and existing plants, with evolving frameworks in place aimed at streamlining approvals for nuclear-powered data centers. As interest in nuclear solutions continues to gain traction, industry stakeholders will need to address permitting, co-location feasibility, and regulatory compliance to leverage this burgeoning energy source effectively.
The regulatory landscape for data centers is evolving as demand for connectivity, energy, and global data transmission continues to rise. While the operation and ownership of data centers themselves are generally unregulated in the United States, any connections between distant data centers, as well as connections to the public switched telephone network (PSTN) or the public internet, adds various compliance obligations when connecting to public networks.
Data center operators must either partner with licensed telecommunications providers or, if they provide external connectivity themselves, obtain regulatory approvals from the Federal Communications Commission and, in some cases, state public utilities commissions.
If the data center operator is to provide telecommunications services directly, it may do so on a common carrier or private carrier basis. The choice between common carrier and private carrier status also determines the level of regulatory oversight, with private carriers being subject to fewer obligations. Additionally, foreign ownership of data centers involved in telecommunications services may trigger national security reviews by the Committee for the Assessment of Foreign Participation in the United States Telecommunications Services Sector (formerly known as Team Telecom), which could subject foreign-owned carriers to substantial federal regulation.
Beyond fiber networks, other technologies, such as fixed wireless and satellite-based connectivity, are expanding data transmission options, bringing additional regulatory considerations in the United States and internationally. Moreover, submarine cables, which carry an estimated 98% of global internet traffic, are increasingly being developed by hyperscale cloud providers to ensure seamless international data transfer. With connectivity needs continuing to evolve, regulatory frameworks will play a critical role in shaping the future of data center operations, both in the United States and globally.