How Data Centers Are Reshaping PJM’s Energy Market

The rapid rise of artificial intelligence and cloud computing has sparked a new kind of energy boom, one driven not by factories or heavy industry, but by data centers. In PJM’s territory, home to the world’s largest concentration of these facilities, the surge is transforming the region’s energy landscape. Northern Virginia’s “Data Center Alley” alone hosts more than 586 operating data centers, and hundreds more are spread across neighboring states. 

But as these digital powerhouses multiply to meet ever-growing computational demands, they are placing unprecedented strain on the grid, accelerating capacity costs, and reshaping how energy is produced, priced, and consumed. A shift has to happen amongst energy suppliers and retail energy providers in order to navigate a market where data, technology, and electricity are more interconnected than ever.

The Data Center Market is Exploding

The data center market is experiencing explosive growth, driven primarily by the high computational demands of artificial intelligence (AI), machine learning (ML), and cloud computing. Data center load growth has been the primary driver of staggering increases in PJM's capacity auction costs, which are passed on to ratepayers. In July 2024, PJM Interconnection released the results of its 2026/2027 capacity auction, which cleared at $329.17/MW-day—a 22% increase over the previous auction. While not as dramatic as last year’s 800% price spike, the new price could translate to 1.5% to 5% f bill increases for some ratepayers, depending on their state.

The rapid expansion is reshaping the digital infrastructure landscape globally. The key load growth drivers include:

Explosive AI and Cloud Computing Demand

AI and machine learning workloads: The development and deployment of generative AI and large language models (LLMs) require immense processing power, relying on powerful and energy-intensive GPUs. Hyperscale data centers, run by tech giants like AWS, Google, and Microsoft, are uniquely equipped to manage these massive workloads.

Expansion of cloud services: The continued migration of enterprises to cloud-based services and hybrid cloud models is fueling continuous expansion by major cloud providers. Services like SaaS, IaaS, and PaaS are all built upon the massive, scalable infrastructure of hyperscale facilities.

Proliferation of digital services: The explosive growth of streaming services, e-commerce, gaming, and social media platforms requires data centers that can provide massive data storage, real-time processing, and low-latency connectivity.

5G and IoT: The rollout of 5G networks and the proliferation of internet-of-things (IoT) devices are generating huge volumes of data at the "edge" of the network. This drives the need for hyperscale providers to invest in edge data centers to process data closer to the source and minimize latency.

Digital transformation: Companies across every industry are undergoing digital transformation, adopting data-intensive applications, and analytics to drive growth. This pushes demand for agile, scalable IT infrastructure that hyperscale data centers provide.

Insufficient Generation and Transmission

Rapid data center buildout: Data centers can be built and brought online faster than new power plants can be constructed and interconnected, creating a supply-demand imbalance.

Generator retirements: The rapid retirement of thermal generators, such as coal plants, is tightening the supply-demand balance and leaving the grid reliant on more expensive, inefficient, and often non-renewable resources in the short term.

Grid constraints: Existing transmission and distribution infrastructure is not sufficient to manage the large, concentrated load of new data centers. This requires extensive, costly transmission and substation upgrades to move electricity flows.

Interconnection queue backlog: Delays in PJM's interconnection queue have stalled the approval and connection of new generation, particularly renewable energy projects, further worsening the supply shortage.

Shift in Load Forecasting

Significant demand growth: PJM's 2025 Long-Term Load Forecast projects a peak load growth of 32 gigawatts (GW) between 2024 and 2030, with data centers responsible for 94% of this increase. This is a sharp departure from historic trends and puts the forecast system peak at 210 GW in 2035.

Volatile and uncertain forecasts: The rapid pace of development has made load forecasting extremely challenging. PJM's market monitor, Monitoring Analytics, has noted that data center load forecasts have "extreme uncertainty," which raises questions about the reliability of the grid's forward capacity auctions.

Regional concentration: Data center development is heavily concentrated in specific areas, such as Northern Virginia's "Data Center Alley" and parts of Ohio. This localized demand surge requires significant new transmission and generation infrastructure in those areas, paid for by PJM ratepayers. 

Impact on Energy Costs and Policy

Ratepayer subsidies: A small number of large data centers are driving the need for expensive infrastructure upgrades, but costs are often spread across all ratepayers, causing electric bill increases for residents and other businesses.

Regulatory pressure: State and federal regulators, along with stakeholders, are pushing PJM for greater transparency and market rule reforms to address the load growth issue. Proposed solutions include requiring data centers to provide or finance their own generation.

Policy responses: In response to the challenges, some states like Virginia and Ohio are exploring new rate schedules for large users and expanding opportunities for onsite, or "behind-the-meter," generation to serve data center demand. AI data centers could strain summertime electricity supplies.

Strategies for Retail Energy Providers

Retail energy providers (REPs) can address the challenges posed by data center load growth in PJM by evolving their offerings beyond simply reselling electricity. They must adapt their business models to manage higher costs and price volatility, and to meet the complex energy needs of large, sophisticated customers. 

Strategic Partnerships

• Collaborate with data center developers: REPs can work directly with data center companies to structure comprehensive energy management solutions, potentially mitigating exposure to market volatility. These solutions might include traditional energy, renewable energy, and demand-side management services.
• Enable "Bring Your Own Capacity" (BYOC): As PJM considers stricter rules requiring data centers to bring their own generating capacity, REPs can help with this process. They can partner with developers to source and integrate on-site generation, battery storage, or other assets that directly support a data center's load.
• Leverage innovative technologies: REPs can use AI-driven analytics to manage the energy use of data center clients and other customers. This can help them improve trading strategies and reduce their overall procurement risk in a volatile market. 

Innovative Pricing and Contract Models

• Customized rate structures: REPs can design specialized rate plans that more fairly distribute the costs of new transmission and generation infrastructure to the large-load customers driving that investment.

• Time-of-use (TOU) and flexible tariffs: By offering TOU pricing, REPs can incentivize data centers and other large customers to shift energy use to off-peak hours. This helps to balance the grid and manage peak demand periods more effectively.

• Corporate renewable contracts: Many data center operators have corporate sustainability and decarbonization goals. REPs can meet this need by offering specialized contracts, such as Power Purchase Agreements (PPAs), that directly fund the development of new clean energy resources. 

 Demand-Side Management

• Expand demand response (DR) programs: REPs can build new demand response programs that specifically target large commercial and industrial (C&I) customers like data centers. These programs can reward facilities for voluntarily reducing energy use during times of grid stress.
• Encourage load flexibility: REPs can work with data centers to explore load flexibility options, such as shifting computer workload between various locations or using backup power during high-demand periods. The development of such programs would be supported by PJM's initiative to enable more efficient use of the grid.
• Monetize existing assets: REPs can recommend data centers on how to monetize their on-site energy assets, including backup generation and storage, by taking part in demand-side management programs. 

Improved Market Intelligence and Forecasting

• Develop enhanced forecasting: REPs must refine their load forecasting capabilities, as data center growth and behavior add a new layer of uncertainty to demand projections. Using AI and advanced analytics can offer more granular insights into energy consumption patterns.
• Understand market trends: REPs need to stay informed about regulatory changes in PJM, including the outcomes of the Critical Issue Fast Path (CIFP) process, to predict market volatility and procurement challenges. This information can inform them about their strategic planning and risk management. 

On-Site and Distributed Energy Services

• Microgrids: REPs can design, build, and run on-site microgrids for data centers, which provide enhanced reliability and energy independence. These systems can use a mix of resources like natural gas generators, fuel cells, battery storage, and renewables to provide continuous power, even during grid outages.
• Fuel procurement: With the rise of on-site generation, REPs can help obtain and manage fuel supply, such as natural gas, for data centers. This is particularly relevant in areas with power bottlenecks where on-site generation is a key strategy for ensuring a firm's energy supply.
• Asset management and monetization: REPs can help data centers monetize their backup generation, battery storage, and uninterruptible power supply (UPS) systems by helping them take part in grid services markets. This turns capital expense into a revenue stream while also supporting grid stability. 

 Energy Efficiency and Optimization

• Energy audits and optimization studies: REPs can conduct in-depth energy audits to help data center operators find inefficiencies and improve energy use. This includes offering advanced monitoring tools and the ability to analyze power consumption patterns and reduce energy waste.
• Software and digital solutions: Some REPs offer proprietary software and energy management systems (EMS) that offer real-time insights into energy consumption. These tools can use AI and machine learning to help data centers forecast and manage their energy use more effectively.
• Efficiency upgrades: Based on audit findings, REPs can offer capabilities and solutions to implement efficiency upgrades — including advanced cooling technologies, optimized power distribution systems, and the adoption of energy-efficient IT hardware.

Grid Integration and Resilience

• Ancillary services participation: Large data centers can contribute to grid stability by providing ancillary services—such as frequency regulation—to help balance short-term fluctuations in supply and demand. REPs with expertise in wholesale markets can enable data centers to take part in these programs, supporting grid reliability while generating added revenue.
• Emergency preparedness: REPs can help data centers develop comprehensive emergency response plans and ensure their facilities are equipped with the latest backup power technology and bridging solutions to keep operations running during power outages.
• Strategic site selection: For new data center projects, REPs can provide strategic site selection help. This includes assessing the availability of power, fuel, and transmission infrastructure to ensure the chosen location can meet the facility's long-term energy needs. 

Investing In the Rising US Data Center Economy 

According to a recent McKinsey analysis, private investors are increasingly investing in data centers. The explosion in demand has attracted the attention of investors of all types—growth capital, buyout, real estate, and, increasingly, infrastructure investors. US data center demand is projected to surge by 2030, potentially tripling in power capacity needs from about 25 GW in 2024 to over 80 GW in 2030.

REPs have opportunities in data center operations, such as power and connectivity. Data centers are big energy consumers—a large data center can use as much power as 80,000 households do, and there is an increasing pressure to make data centers sustainable. This development gives REPs opportunities to help data centers secure carbon-free energy supplies. To reach carbon-free energy goals, data center owners are signing power purchase agreements (PPAs) with suppliers of renewable energy. Investors with smaller data centers could aggregate their purchasing power to optimize energy procurement and storage. 

The Road Ahead for PJM and Energy Providers

The surge in data center development is redefining PJM’s energy landscape, driving both unprecedented growth and significant strain on the grid. As AI, cloud computing, and digital transformation continue to accelerate, the region’s generation and transmission systems must evolve just as quickly. For retail energy providers, this period of disruption presents an opportunity. Those who anticipate market shifts, strengthen partnerships with data-intensive customers, and invest in innovative technologies will be best positioned to lead in a more dynamic, data-driven energy economy. The path forward will demand flexibility, collaboration, and strategic foresight—qualities that will define the next era of energy leadership in PJM and beyond.