Demand for data centers drives a 66% increase in costs for natural gas power plants

Technology companies, including Microsoft and Meta, have fallen in love with natural gas recently, rushing to build fossil fuel-fueled power plants to power their data centers. But their embrace may be a bit tight, as the cost of building a facility has risen 66% in the past two years, according to a new report from BloombergNEF.

While natural gas prices remain low in the United States despite the ongoing war in Iran, the price of building a new combined cycle gas turbine (CCGT) power plant has risen from less than $1,500 per kilowatt of generating capacity in 2023 to $2,157 last year, the report said. Furthermore, it takes 23% longer to complete the new facility.

Data centers are one of the main drivers of increased electricity demand, prompting not only technology companies to invest in natural gas, but in utilities as well. The Trump administration has urged data center operators to “bring their own power,” but utilities tend to pass on the cost of new generation to customers. This has led to a growing backlash against data centers among the general public.

Although data centers are not the only driver of new electricity demand, they are one of the fastest growing users. The new additions are expected to reach 2.7 times current demand, taking it from 40 gigawatts today to 106 gigawatts by 2035. Part of the driver is the sheer size of the new data centers. Today, only 10% of facilities have a capacity of 50 MW or more. Over the next decade, the average data center will be larger than 100 megawatts.

Until recently, technology companies favored grid-tied data centers backed by power purchase agreements for wind, solar and batteries. But rising demand for electricity, driven by artificial intelligence and general hostility toward data centers, has prompted more new natural gas projects.

The scramble for natural gas power plants has caused a shortage of gas turbines. By the end of this year, equipment prices, which make up up to 30% of the cost of a new power plant, are expected to be 195% higher than in 2019. The manufacturing technology required to make gas turbines isn’t scaling up quickly either. As a result, waiting lists extend into the early 2030s.

However, not everyone is interested in natural gas.

Google has begun outlining a new approach to adding generation capacity to the grid that relies on renewable energy sources coupled with long-term energy storage, including Form Energy’s massive iron-air batteries, which can release electricity over 100 hours. Unlike gas turbines, solar panels and batteries have become cheaper over time, providing an alternative to the high costs of natural gas power plants.