In early 2026, data centers consumed roughly 1,000 megawatts of electricity, about 2% of California ISO’s peak load. The California Energy Commission projects that figure will reach 4,500 megawatts, or 9% of peak demand, by 2040. That projection sits on top of overall peak demand the CEC expects to rise between 42 and 61% by 2045, driven by electric vehicles, building electrification, and data centers combined.
Nationally, a new Lawrence Berkeley National Laboratory analysis found that data centers could account for more than 40% of U.S. electricity demand growth over the next five years and consume between 9.5% and 15.3% of the country’s power by 2030, with a midpoint estimate of roughly 11.8%. The state’s grid was already projected to fall short of its own energy mandates before a single data center request arrived.
Pacific Research Institute’s Wayne Winegarden and Kerry Jackson found in “The Cost of Going Green” that California households will bear between $17,398 and $20,182 each to fund the state’s green energy transition between 2025 and 2050, and that by 2045 the state could fall 21.2% short of the daily power needed to meet the demands of its residents and businesses. The deficit grows worse when prohibitions on gas-powered heaters and appliances are factored in. Data centers had nothing to do with that deficit. State regulation created it.
Economist Thomas Sowell once observed that “the first lesson of economics is scarcity; the first lesson of politics is to disregard the first lesson of economics.” Over two decades, California has shuttered gas plants, restricted natural gas infrastructure, made oil production more costly, and moved to close Diablo Canyon, its only remaining nuclear facility. By 2045, all electricity must come from wind, solar, and hydro. Natural gas, nuclear, and oil are dispatchable. They meet demand when the wind is not blowing and the sun is not shining. Wind and solar are not. These are not arguments against clean energy. They are arguments about what happens when a state eliminates its most reliable sources before it has a viable replacement ready.
AI data centers did not create California’s energy deficit. They are revealing it. A Stanford University roundtable found that by 2040, California’s peak power demand will grow by the equivalent of 20 million additional homes, driven largely by AI computing. The experts also concluded that California has roughly 24 months to course correct before losing its competitive advantage to states that have better aligned their energy policy with what the AI economy actually requires. Tech companies need data centers operational within two years, and California’s permitting and grid connection timelines already make that nearly impossible. Those delays already have consequences just across the state line. Nearly 50,000 Lake Tahoe residents lost their power provider after NV Energy redirected capacity to AI data centers near Reno. Nevada’s situation is a preview. California’s version will be larger.
California can change course, but it requires implementing policies it has so far avoided. The first is ensuring current ratepayers are protected as capacity expands for new load. When data centers are structured to pay their full cost of grid service, everyone benefits. Oregon and Minnesota have passed legislation to ensure exactly that. PG&E CEO Patti Poppe confirmed that data center growth has already helped cut PG&E rates 11% since 2024, with roughly 1% in rate reduction for every new gigawatt added to the system. In Cedar Rapids, Iowa, a single QTS data center deal locked in five years of no utility rate increases for local residents. Data centers, structured correctly, can be a win for the communities that host them. California has not created the policy environment that makes that outcome likely.
The second is permitting reform. Streamlining interconnection approvals and permitting for all forms of reliable generation, including natural gas and nuclear, would allow the state to meet new demand without pulling capacity away from customers already on the grid. Bloom Energy’s 2026 Data Center Power Report projects California will lose more than half of its relative data center market share within three years if nothing changes.
Last, California needs an honest reassessment of the 100% renewable mandate that requires eliminating dispatchable generation before storage technology exists to replace it. Current customers are already absorbing the cost of that mismatch in higher rates and a strained grid. Reconsidering that mandate is not a retreat from clean energy. It is an acknowledgment that keeping the lights on for existing customers and making room for new industries are not problems that wind and solar alone can solve.
California does not need more mandates. It needs a grid plan that works for the customers already on it and the industries that want to join it. The AI boom is here. The data centers are being built. The only question is whether California makes the policy choices that keep that investment in the state or lets it go somewhere else.
Anthony Velasquez, MBA, is Pacific Research Institute’s Communications Specialist.
