Jun 6, 2025 By Colin McNickle 4 min read

It certainly is on its way to become the “it” phrase of 2025: data centers.

The rise of Artificial Intelligence (AI) technology has fueled the rush to build data centers to crunch all the algorithmic permutations that are part and parcel to AI.

And all that crunching takes a lot of energy, as in electricity and energy sources to generate it.

But can Pennsylvania’s energy supply keep up with what’s expected to become an exponential demand? And how best can government foster a more stable supply and demand equilibrium in the face of the continuing AI explosion?

These are just two of many critical questions being pondered by Frank Gamrat, executive director of the Allegheny Institute for Public Policy (in Policy Brief Vol. 25, No. 19).

Citing a 2024 paper by the Electric Power Research Institute (EPRI), Gamrat says new data centers are being built that would consume anywhere from 100 to 1,000 megawatts of energy – roughly the equivalent of 80,000 to 800,000 homes worth of electricity.

The mismatch of demand and available supply will occur when data center construction, typically one to two years, outpaces electricity generating facilities construction, which can take several years to develop and connect.

Even connecting new centers to current electricity companies can take four or more years to plan, permit and construct new transmission lines to handle this new demand, the EPRI study notes.

“After years of little or no demand growth, a federal push for electric vehicles and household appliances such as stoves to replace those using fossil fuels, has boosted the demand for electricity,” Gamrat says. “In conjunction with the retiring of fossil fuel plants – such as the one in Springdale Boro, Allegheny County and Homer City in Indiana County – the demand began to outstrip supply. An increase in electricity price was inevitable.”

The former site of the Homer City power plant is now being reimagined as a data center campus and a similar idea is being floated for the Springdale site.

“The Homer City proposal will include its own natural-gas powered 4.5 gigawatt generation plant, which will make it the largest in the state by 3.5 gigawatts,” the Ph.D. economist notes. “This underscores the need for a tremendous increase in the supply of electricity to make the data center possible.”

On the other side of the commonwealth, Microsoft has entered into an agreement with Constellation Energy to purchase energy from a rebooted Three Mile Island Unit 1. Microsoft also has made a $1 billion investment in a new Wyoming nuclear power plant.

But outside of these private companies creating a private, dedicated electricity supply for their demand, Gamrat asks if the Keystone State is ready for the coming ancillary AI growth scenarios.

While EPRI lists Pennsylvania’s strengths as its strategic location near major East Coast markets and relatively low energy costs, Gamrat says it’s worth adding skilled labor, thanks to the plethora of top universities and colleges, along with lower land costs and an abundance of natural gas due to the shale formations beneath the commonwealth.

But, “Challenges include an aging infrastructure along with regulatory scrutiny and the demand for green energy solutions,” he says.

“Pennsylvania has a strong regulatory climate that tends to bog down projects,” the think-tank scholar reminds. “This is one time when slowing down the upgrade of the electrical infrastructure cannot happen if the state wants to cash in on the data-center movement and the jobs and economic growth that come with them.”

That means state government must provide these facilities with a quick-permitting process and eliminate the political hurdles they face to get up to operational speed as quickly as possible, Gamrat stresses.

“But most importantly, Pennsylvania’s leaders must refrain from awarding taxpayer subsidies to boost companies in this growing industry, he says, noting that the Homer City project received a $5 million Redevelopment Assistance Capital Program grant for a natural gas pipeline improvement project.

“Outside of a role to ensure the safety of its citizens as the electrical capacity and transition takes place, it is important that these leaders avoid political overreach and instead provide a proper free-market environment to encourage this industry to grow and prosper,” Gamrat concludes.

Colin McNickle is communications and marketing director at the Allegheny Institute for Public Policy (cmcnickle@alleghenyinstitute.org).