Excess capacity may be secret weapon against rising U.S. electricity prices

The U.S. electricity system operates much like a restaurant that never closes. It is staffed and ready around the clock, even though customers arrive in large numbers only during brief surges. For most hours of the year, demand is far below the system’s maximum capability, yet utilities must keep the entire grid available to avoid outages that can be dangerous or even fatal.

This structure exists because the grid is designed to withstand peak demand, typically during extreme summer heat or winter cold. As a result, the system often runs at roughly half of its total capacity, a reality that drives up electricity prices since much of the cost lies in building and maintaining infrastructure rather than using it.

 

Rising Demand Creates a New Opportunity

 

After decades of relative stability, peak electricity demand in the United States is expected to rise by nearly 24 percent within the next five years. Aging infrastructure, electrification, and rapid growth in AI data centers are pushing utilities to invest heavily, with higher costs passed on to consumers.

Some energy researchers argue that this shift presents an opportunity rather than only a burden. During many hours of the day and large parts of the year, spare grid capacity sits unused. If new electricity users could draw power during these low-demand periods, the fixed costs of the grid could be spread across more customers, easing pressure on rates.

Ryan Hledik of the Brattle Group notes that when electricity use is added precisely where and when capacity is available, the overall system becomes more efficient. Utilization levels can range widely, from around 30 percent in some rural areas to as high as 60 or 70 percent in dense urban regions with more extreme temperatures.

 

Designing for Rare Extremes

 

Utilities intentionally build conservatively. According to Larry Bekkedahl of Portland General Electric, peak load conditions may occur only a handful of days each year, but the system must still function during worst-case scenarios. Heat waves, cold snaps, or the failure of major power plants, such as gas facilities during severe freezes, demand built-in redundancy.

This caution creates a bias toward overcapacity. Oliver Kerr of Aurora Energy Research explains that utilities are generally reluctant to take actions that could increase risk, even if the system is underused most of the time.

 

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Incentives That Encourage Overbuilding

 

Another factor shaping grid expansion lies in how utilities earn returns. Companies are allowed to profit from capital investments such as new power lines, substations, and generation facilities, but not from operating costs. As Amit Narayan of GridCARE describes it, utilities are rewarded for building more infrastructure rather than making existing assets work harder.

This incentive structure can lead to grid expansion that exceeds what is strictly necessary, increasing costs for customers and reinforcing underutilization.

 

Flexible Demand as an Alternative

 

Some researchers and startups propose a different approach: adding new electricity customers who agree not to draw power during peak demand periods. Data centers are often cited as candidates for this model, since many can shift workloads across locations or rely briefly on on-site backup generation.

A study by Duke University researchers found that the existing U.S. grid could support roughly 100 gigawatts of additional load from data centers willing to curtail usage for a few hours during peak events, amounting to about one week per year.

Narayan’s company, GridCARE, has already helped Portland General Electric identify 80 megawatts of spare capacity suitable for incoming data centers. In 2024, Google announced similar arrangements in Indiana and Tennessee, committing to reduce power consumption during periods of peak demand.

Potential Benefits and Real-World Skepticism

In theory, flexible demand could lower electricity prices. If utilities avoid building new power plants and transmission lines, those capital savings could be passed on to ratepayers. Bekkedahl argues that reducing the need for new infrastructure benefits everyone connected to the grid.

However, skepticism remains. Kerr points out that data centers are multibillion-dollar investments, and modest electricity savings may not be enough to motivate participation. He suggests that strict contractual requirements would be needed to guarantee that data centers actually reduce consumption during critical periods.

Over the past year, many new data centers have not adopted this flexible approach. Instead, utilities in regions such as Maryland, Northern Virginia, and Ohio have expanded grid capacity, often relying on natural gas, which has raised both electricity prices and carbon emissions. This has led to frustration among consumers who question why they are paying higher rates to support AI-driven growth.

 

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A Shift in Burden

 

Supporters of the flexible demand model believe it could rebalance responsibilities across the system. By using existing capacity more efficiently, utilities could avoid unnecessary expansion, and customers could benefit from lower rates.

As Narayan puts it, shifting how and when electricity is used could ease pressure on utilities and ratepayers alike, turning the grid’s chronic underutilization into an advantage rather than a liability.

 

 

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