Elevated Construction and Power Generation Equipment Costs for AI Data Centers

Data Center Construction

Currently, the US data center market can be split into three overall regions: East, Central, and West; many companies deploy in all three regions. US data centers are in or around the leading metro markets in these regions. The most numerous US data center locations are Northern Virginia and Northern California, and other important markets are Texas, New York/New Jersey, and Illinois. Each of the major US markets is home to key data centers. However, there has been a large increase in development in rural areas as developers seek cheaper land, access to critical utilities such as power and water, and credits and incentives from local governments.

At the start of 2026, nearly 3,000 data centers were under construction or are planned for completion by 2030. Virginia and Texas lead the way with 595 and 412, respectively. ¹ This unprecedented growth will almost double the portfolio of data centers currently online, and the entire investment in data center construction and associated infrastructure is expected to top $3 trillion in the US and over $7 trillion globally by 2030. Data centers will also generate an estimated $27 billion in tax revenue for state and local jurisdictions over the next decade. ²

To put this unprecedented growth and spending in perspective, the Manhattan Project and the Apollo missions at the peak of government spending never reached more than 0.4 percent of gross domestic product (GDP). ³ In 2025, AI data center spending already accounted for 1.3 percent of total US GDP. ⁴

Industrial Construction Costs

According to the Bureau of Labor Statistics, the cost of industrial building and warehouse construction is up over 41.8 percent and 47.2 percent since 2020, respectively. ⁵ While some of this is attributable to inflation caused by poor fiscal policy as a response to the pandemic, a large portion of the increase in cost is attributable to data center construction. This also has a tangential effect on other types of construction, such as office and other public buildings, which have seen large increases in construction costs as the various classes of building construction compete for materials and skilled labor.

A typical data center employs roughly 1,600 to 1,700 people during construction. Unfortunately, there is a massive shortage of electricians, plumbers, and HVAC technicians. It is not uncommon for some skilled trade technicians to receive over $200,000 in total annual compensation, including signing bonuses. ⁶ The cost for skilled trades will only increase as there are currently not enough skilled tradespeople, nor enough people in the trade school and apprenticeship pipelines to keep up with demand. ⁷

Construction materials and specialized trades such as concrete, plumbing/HVAC, and electrical have all increased dramatically since 2020. ⁸ Plumbing and HVAC are critical for data center operations as large amounts of air and water need to be circulated for data center operations to cool the computer equipment.

Power Transmission and Generation Costs

Data centers are estimated to consume 9 percent of total US power generation by 2030, and existing data centers are already placing a strain on regional power grids, and the expected new electricity demand will not help the existing deficiencies in reliability. ^{9, 10} The current limiting factor for most data center projects is securing power grid interconnect and/or power supply. ¹¹ Some data centers are even installing their own electrical generation equipment to bypass this issue. To help counter this, utilities are making significant capital expenditures to develop new transmission and generation capacity to support data center growth.

However, some states like Texas, through the Electric Reliability Council of Texas (ERCOT), have recently considered pulling back some data center approvals to allow generation capacity and transmission infrastructure to catch up. Under an ERCOT proposal, projects representing about 8.2 gigawatt (GW) of power consumption could be subject to review. The projects that could be reviewed are a fraction of the 255.0 GW of expected data center power load needed in Texas by 2030, which is three times the current capacity of ERCOT. ¹²

In its November 2025 forecast, American Electric Power Company (AEP) increased its capital plan from $16 billion to $72 billion to meet anticipated additional capacity demand in its 11-state service area. AEP cited customer commitments for 28 GW of new demand by 2030, and an increase of 28 GW would almost double the utility's current system size of 30 GW. ¹³

This unprecedented surge of additional capacity has already caused supply constraints in the power generation equipment; lead times of original equipment manufacturers (OEMs) such as General Electric and Caterpillar have doubled from 18 months to 36 months or more. The desperation for equipment has become so great that a secondary market has developed that buys and sells places in line with the OEMs.

A great example of the cost increase is the venerable GE Frame 7 turbine and generator sets. The Frame 7 is a workhorse and has been deployed around the world for many years, and new units in the 80- to 90-megawatt range have increased in price by 235 percent since 2024.

Not only has the OEM market been affected, but the secondary or "gray" market has also seen a tremendous increase in the transaction price and values as well. Used GE Frame 7 units have increased in value by 200 percent over the past 18 months.

Other key components like boilers, transformers, and transmission equipment have also increased. Transformers are particularly vulnerable to price increases as they are no longer manufactured in the US; we rely on Chinese and German imports, which are subject to tariffs and other geopolitical constraints. The graphic below demonstrates the rise in costs from 2020 through 2025.

Conclusion

The inevitability of AI is certain, barring cosmic calamity or heavy-handed government interference. Whether AI will usher in a golden age utopia, the hellscape of James Cameron's The Terminator, or more likely something in between is unclear. However, we have some breathing room as equipment manufacturers increase production to meet demand and the skilled trades' education pipeline increases to fill the void.

Until those two limitations are met, costs will be elevated to the unprecedented levels we currently see. To secure a piece of the $3 trillion AI pie, to quote a nineteenth-century general of dubious character, "Whoever gets there first with the mostest" wins the opening rounds of the AI race.