The Impact of AI on Energy Demand

Artificial intelligence (AI) requires a lot of energy. In fact, making a query on a chatbot that uses AI is estimated to use 10 times more electricity than a standard Google search — about equal to running a low-lumen LED lightbulb for an hour.

If you consider the fact that energy demand was already on the rise in recent years (due in large part to the push to electrify more things, including vehicles, homes, and buildings), it becomes clear that the industry is going to be challenged to meet this demand — which will likely lead to volatility and could mean higher energy prices.

Overall, this rising power demand could have a significant impact on energy costs, due to several key factors at play: 

1. Supply and demand dynamics: As demand rises and the supply-demand balance tightens, market volatility is more likely, as is scarcity pricing. This is particularly true during peak demand periods.
2. Fuel costs: The price of electricity is influenced by the cost of the fuels used to generate that electricity, and as demand for these fuels also increases, prices are likely to climb. While the grid continues to transition from fossil fuels to renewables, natural gas producers are planning for a significant spike in demand over the next decade to help meet AI-driven demand.
3. Infrastructure investments: To meet rising electricity demand, utilities will need to invest in costly investments in new power generation capacity, transmission lines, and distribution infrastructure, as well as smart grid technology to support rising power consumption. Rising electricity demand often coincides with a push toward renewable energy sources, the integration of which requires additional infrastructure investment.

Ultimately, the impact of rising electricity demand on energy prices depends on several factors, including the energy mix, market structure, and government policies. So, what can businesses and consumers do to more effectively manage energy spend? There are a couple options:

• Connect with your supplier to make sure your business has a true strategy in place — not just a process for paying the bill. An experienced energy supplier can help you and your organization navigate market volatility based on the customer’s unique risk tolerance and needs.
• Focus on what you can control: energy efficiency. Finding ways to reduce energy consumption should be a top priority, as making even small reductions can dramatically affect energy spending.

For energy market insights, check out the latest Market Commentary from IGS Energy’s team of market experts.  

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