Tech companies such as Microsoft and Meta have been increasingly turning to natural gas, rapidly constructing power plants fueled by this fossil fuel to power their data centers. However, the cost to build these facilities has surged by 66% over the past two years, as reported by BloombergNEF.
Despite stable natural gas prices in the U.S. amid the ongoing conflict in Iran, the cost to build a new combined cycle gas turbine (CCGT) power plant has climbed from below $1,500 per kilowatt of generating capacity in 2023 to $2,157 last year. Additionally, construction time for new facilities has increased by 23%.
Data centers are significantly driving the demand for electricity, prompting tech companies and utilities to invest in natural gas. The Trump administration encouraged data center operators to “bring their own power,” yet utility customers often bear the cost of new generation, sparking public opposition.
Although data centers are not the sole contributors to new electricity demand, they are rapidly growing consumers. The demand is projected to increase 2.7 times, rising from 40 gigawatts currently to 106 gigawatts by 2035. This growth is partly due to larger-scale new data centers, with average sizes exceeding 100 megawatts in the future.
Previously, tech companies preferred grid-connected data centers supported by power purchase agreements for renewable energy sources like wind and solar. However, increasing demand driven by AI and public discontent has led to more natural gas projects.
The rush for natural gas power plants has resulted in a shortage of gas turbines, with prices expected to rise by 195% from 2019 levels by the end of this year. Manufacturing limitations for gas turbines prevent quick scaling, causing waitlists to extend into the early 2030s.
Not everyone is opting for natural gas. Google is exploring new methods to add generating capacity using renewables combined with long-duration energy storage, such as Form Energy’s iron-air batteries, capable of delivering power for 100 hours. Solar panels and batteries have become cheaper over time, presenting an alternative to the escalating costs of natural gas plants.
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