A cheap, bipartisan tool could help the US meet increasing energy demand from AI datacenters while also easing soaring power bills for households, preventing deadly blackouts and helping the climate.
The policy solution, called “demand flexibility”, can be quickly deployed across the US. Demand flexibility essentially means rewarding customers for using less power during times of high demand, reducing strain on the grid or in some cases, selling energy they have captured by solar panels on their homes.
Peak power demand is expected to grow by 20% over the next decade – driven by the dramatic rise of AI datacenters, onshoring of manufacturing, increasing use of EVs and growing need for air conditioning amid hotter summers.
Increasing energy demand is putting states such as California and Texas at higher risk of life-threatening blackouts in extreme weather. Meanwhile, the average household price of power increased by 9.5% this year. The largest increase was in Missouri, which jumped by 38%.
Rising energy demand also threatens our climate. The Trump administration is responding by boosting new gas infrastructure and attempting to delay the shutdown of coal-fired power plants – keeping fossil fuels alive.
Demand flexibility can have a large impact. The US is expected to add 100GW of new datacenter demand by 2035. The good news is that adopting flexibility policies can add over 100GW of new capacity, according to a Duke University study published this year. That’s equivalent to adding 30,000 utility-scale wind turbines, or 50 Hoover Dams, or 260,000 Teslas.
Before they come online, datacenters need to have proactive plans to avoid drawing too much energy, said Tim Profeta, co-author of the study and executive in residence at Duke’s Nicholas Institute for Energy, Environment and Sustainability. Regulators and utilities can require data centers to create flexibility plans in exchange for jumping long queues to connect to the grid. For instance, they can add battery storage or backup generators to reduce strain on the grid as needed. “The biggest incentive is speed to interconnect to the grid,” he said.
Governments can also adopt demand flexibility policies to ease household power bills. “It is one of the few tools that can be deployed at scale over the next few years to eliminate rate increases across the country,” said Jigar Shah, energy entrepreneur and former director of the US Department of Energy’s loan programs office.
Power bills would be lower if electric utilities used their existing infrastructure more efficiently, Shah said, rather than spending money on capital projects because they are guaranteed a rate of return on that investment. “There’s a tension here between for-profit utilities with shareholders and keeping bills as affordable as possible,” Shah said.
Advocacy groups are pushing for state laws that require utilities to be regulated in a way that improves their use of existing infrastructure. In California, the state with the second-highest power rates in the country, the clean energy industry group Deploy Action pushed for the state to pass a law requiring regulators to study demand flexibility. On 3 October, Governor Gavin Newsom vetoed the bill, saying it would create a crushing workload for regulators.
California is behind other states on this policy solution. In August, Josh Stein, the North Carolina governor, signed an executive order that created a taskforce to address soaring energy demand. “We are definitely looking at how to create flexible load structures as a first order question,” said Profeta, who sits on the taskforce.
Shah, an adviser to Deploy Action, said Newsom told the group he would work with them next year to pass a bill that is acceptable to everyone. “Governors around the country are asking themselves: ‘What can I do to drive affordability in this moment?’” Shah said. “Time and time again, they’re realizing the only thing that’s going to work right now is to force utility companies to use what they’ve already paid for more efficiently.”
In Texas, following the 2021 winter storm that killed hundreds of people, a law passed this year requires large energy users such as datacenters to enable remote disconnection during emergencies and report backup generators.
Other countries have experimented with demand flexibility. During the global energy crisis in 2023, the UK used smart meters to reward domestic customers by offering discounts on their energy bills if they used less energy during periods of high demand. Power companies gave people 24 hours’ notice that a “saving session” was coming, so they could plan to reduce energy use.
In the US, the vast majority of demand flexibility programs have been adopted in Republican states, Shah explained – mostly by rural electric co-ops and municipal utilities. Shah pointed to Rocky Mountain Power, a for-profit utility in Utah, which pays residents $300 per kWh the use of solar power captured by the battery storage system they have installed. In exchange, the utility gets to use that battery whenever it’s not in use. This helps Utah to maintain some of the lowest power bills in the country. (Rocky Mountain Power also quietly supported anti-protest bills across different states where lawmakers wanted to expand and protect gas infrastructure.)
Examples can also be found in Democratic states such as Maryland. In response to increasing electric bills and unreliable power, Baltimore Gas Electric is giving rebates for people who install smart thermostats that keep temperatures within a comfortable range while decreasing energy demand. BGE also pays homeowners with EVs for letting the utility use their batteries as backup power.
In the coming years, the US will need to scale up other clean energy solutions like geothermal, but in the meantime, flexibility policies can meet new demand. “That seems to be a very attractive concept, no matter where you are in the political spectrum,” Profeta said.
