Will AI data centers cause economies of scale in the power industry?

See The Electric Grid Needs Huge Upgrades. No One Knows Who Will Pay for Them: Utilities around the U.S. are set to spend tens of billions of dollars on high-voltage lines, largely to meet demand from data centers by Katherine Blunt and Jennifer Hiller of The WSJ.

Economies of scale is when more capital is built (like a larger factory for more extensive grid system) that allows for more output (see related post below on the Model-T). The increase in quantity is larger than the increase in total cost (in percentage terms). So the average cost falls.

Excerpts:

"The AI build-out is driving up electricity costs in some places, an issue that has angered politicians and spurred intervention by the Trump administration. The White House this month announced that seven of the nation’s largest tech companies had agreed to pay for all the costs associated with powering new data centers."

"the prices utilities charge to customers. That is overseen by state regulators, who have in recent years approved rate increases as utilities make investments not only to support data centers but also to upgrade the grid to withstand more extreme weather and replace parts that are decades old."

"Transmission spending, though, poses challenges for utilities and regulators in determining how costs should be divided. In many places, some transmission costs will be shared among customers other than tech companies because the upgrades may benefit the broader system.

“Data center developers have said they want to pay their fair share, but the question is, what does fair mean?” said Timothy Fox, managing director at ClearView Energy Partners. “Cost allocation for transmission has always been a very complex and difficult question. It’s an imperfect science.”

The utility industry argues that adding data centers has the potential to lower costs for other customers, as they could spread shared costs over a greater volume of electricity sales. That has been the case in some places such as North Dakota." (this is where the economies of scales comes in)

"Brent Bennett, a director at the conservative Texas Public Policy Foundation, said the costs could fall more heavily on residential customers than on the companies that are creating the new demand. His organization has estimated that the average ratepayer will pay somewhere between about $150 and $225 a year for the transmission projects that have been recently approved."

Related post:

Jeopardy and the inflation adjusted price of a 1908 Ford Model T (2023)

This site, Ford Model T Original Prices, from FordModelT.net run by Mitchell Taylor shows all the prices of the different body styles for the Model T from 1909 to 1927 (as well as drawings of some them).

The cheapest in 1909 was the Runabout with a price of $825. The price generally kept falling and by 1925 a buyer only paid $260. That is a drop of about 68%.

But, adjusting for inflation, what would you have to pay in 1925 for something that cost $825 in 1909? Prices were 93% higher in 1925 than in 1909. So if the price of the Runabout had just kept up with inflation, it would have been $1,592 in 1925. Yet it was only $260. That means the price actually fell about 84%, adjusted for inflation.