U.S. tech giants’ reliance on natural gas power plants is rising sharply as data center power demand surges driven by generative artificial intelligence, but that embrace is coming at a high cost. A latest report from BloombergNEF shows that the cost of building a gas-fired combined cycle power plant has increased by about 66% in the past two years, and the construction period has also been significantly lengthened.
The report pointed out that although the spot price of natural gas in the United States remains relatively low amid the ongoing war in Iran, the unit installed cost of new combined cycle gas turbine (CCGT) power plants has climbed from less than US$1,500 per kilowatt in 2023 to US$2,157 last year. At the same time, the overall time from start to completion of new power plants has been lengthened by about 23%.
Behind this round of price increases, data centers are one of the key forces driving new power demand. Technology companies such as Microsoft and Meta have recently announced the construction of their own gas-fired power plants to directly power data centers instead of relying solely on the public power grid. The Trump administration has also publicly urged data center operators to "provide their own power supply," pushing more companies to build their own units. However, power companies are also increasing investment in gas-fired units and passing on new power generation costs to all users through the electricity price mechanism, which has triggered a rising backlash against the construction of data centers among ordinary Americans.
From an incremental perspective, data centers are not the only factor, but they are one of the fastest-growing major electricity consumers. According to previous predictions, newly built and expanded data centers will push related electricity demand to about 2.7 times the current level by 2035, from about 40 GW today to 106 GW. Behind this is not only an increase in quantity, but also a jump in individual scale: currently only about 10% of data centers have an installed capacity of 50 megawatts and above, and in the next ten years, the average size of new data centers will exceed 100 megawatts.
In the past few years, large technology companies have mostly operated data centers connected to the grid and hedged carbon emissions and price risks by signing long-term power purchase agreements (PPAs) with wind power, photovoltaic and battery storage projects. However, sudden increases in electricity demand due to artificial intelligence, combined with growing community resistance around data center facilities, are pushing more companies back to a route dominated by natural gas power plants.
The direct consequence of the industry's "rush to install" gas power plants is a serious shortage in the supply of core gas turbine equipment. The report shows that by the end of this year, the price of gas turbines used for power station main engines is expected to increase by 195% compared to 2019, and the cost of this part of the equipment can account for 30% of the entire station cost. Due to the highly complex manufacturing process of gas turbines and the limited expansion speed of the industrial chain, the order queue has extended to the early 2030s.
Amid the clamor for natural gas, some technology companies have chosen to take a different path. Google has begun to outline a new power solution for its data center expansion. The core is to deeply integrate renewable energy with long-term energy storage, including the use of Form Energy's large-scale iron-air battery system, which can continuously output power for up to 100 hours. In contrast to the rising overall costs of gas turbines, photovoltaic modules and battery energy storage have continued to fall in price over the past few years, making them an alternative path to hedging the soaring costs of gas-fired power plants.