Tackling Energy Challenges in Data Centers: A Path towards Efficiency, Reliability, and Sustainability
- Chris Tracy
- Jul 25
- 7 min read
Updated: Jul 28
Data centers are the digital backbones of the U.S.. They're powering everything from cloud storage and financial transactions to AI and streaming services. There's a catch, though: data centers have an insatiable hunger for electricity, which is straining the grid and will likely slow our transition to carbon-free energy. According to the DOE, data centers consumed about 4.4% of U.S. electricity in 2023. That percentage is expected to double by 2030. As demand for digital services grows, so does the pressure to make these facilities more energy efficient, reliable, and sustainable.
This blog explores data centers' key challenges and outlines practical, research-supported strategies for reducing energy use while enhancing performance and resilience.
Recognizing the Challenges
Data centers face a growing number of energy-related challenges in the years ahead, including:
Skyrocketing Energy Consumption
A large hyperscale data center can use as much electricity as 80,000 households. They require vast amounts of electricity to run servers, storage systems, and networking equipment around the clock. Cooling these components is equally demanding, accounting for up to 40% of total energy use in some facilities. With the rapid growth of AI workloads, edge computing, and cloud services, this energy demand is only increasing.
Strain on Local Grids
According to federal reports, electricity demand from U.S. data centers is expected to grow from 19 GW in 2023 to 35 GW by 2030. This rapid growth poses risks to grid reliability. It could slow the country's progress toward a net-zero energy system, due to limited infrastructure and long delays in building new power capacity.
New research suggests that the rapid growth of AI-driven data centers may be degrading the quality of electricity delivered to nearby homes—especially in central data center hubs like Dallas, Silicon Valley, Phoenix, and Northern Virginia.
A Bloomberg report, citing data from Whisker Labs and DC Byte, found that these facilities are linked to a surge in “harmonics,” a disruption in the normal flow of electricity that causes voltage spikes and dips. If left unaddressed, these fluctuations can damage appliances or even spark home fires.
“Harmonics are a pretty good canary in the coal mine for early signs of stress and problems,” said Bob Marshall, CEO of Whisker Labs.
The report found that over 75% of the most distorted power readings occurred within 50 miles of major data center clusters.
Rising Energy Costs and Volatility
Commercial electricity rates in the U.S. have jumped as much as 25% over the past three years, mainly because of grid upgrades and higher labor costs, pushing overall energy bills even higher. Adding to the pressure, growing electricity demand from data centers, AI technologies, cryptocurrency miners, and electric vehicles has increased costs.
These pressures, aging infrastructure, inflation, and regional weather extremes have translated into higher electricity prices and more frequent utility rate increases across the country. Electricity costs are a top operating expense for data centers. As national and global energy markets fluctuate, data centers face budget uncertainty, especially in regions where high utility rates are unreliable.
Sustainability Pressures and Carbon Emissions
In a world moving toward net-zero goals, energy-intensive data centers are under increasing scrutiny. Data centers and transmission networks are currently responsible for 1% of energy-related greenhouse gas emissions. Much of their electricity still comes from fossil fuels, leading to substantial Scope 2 emissions. Stakeholders now demand carbon transparency, energy disclosures, and progress toward science-based targets.
Implementing Cost-Saving Solutions
Invest in On-Site Renewable Energy
As data centers face rising operational costs, tighter emissions regulations, and growing pressure to reduce their environmental impact, energy management is becoming a critical concern. These facilities are especially vulnerable to power fluctuations—brief outages can lead to data loss, system failures, and severe financial consequences. That’s why having a reliable, uninterrupted power supply is essential. Energy reliability is now seen as key to keeping the U.S.'s competitive edge over China in AI.
When combined with sustainable energy, power purchase agreements (PPAs) help data centers lock in stable energy costs and avoid the ups and downs of fossil fuel prices. Plus, signing more PPAs—especially those tied to building new renewable projects—helps bring even more clean energy to the grid. Leading tech companies like Amazon and Google are actively expanding their use of renewable energy and signing new PPA agreements. According to Deloitte, the tech sector continues to lead U.S. corporate renewable energy procurement, accounting for over 68% of nearly 200 deals made between February 2023 and February 2024.
On-site Energy Generation + Storage Systems
Data centers' insatiable appetite for electricity calls for integrating renewable resources. On-site energy generation, such as wind, solar, hydro, and battery storage, has become a vital tool for data centers to improve reliability and support sustainability. As the UN General Secretary stated recently, "The future is being built in the cloud. It must be powered by the sun, the wind, and the promise of a better world."
Bloom Energy has released a mid-year update to its 2025 Data Center Power Report, revealing that more data centers are turning to on-site power as their primary energy source.
Key findings from the update include:
Power delays are more extended than developers expect: In major U.S. markets, utilities say it may take up to 2 years to deliver power than data center operators anticipate.
Power access now drives site selection: 84% of developers list electricity availability as one of their top three considerations when choosing a new location.
On-site power use is surging: By 2030, 38% of data centers are expected to use on-site generation as their primary power source—up from just 13% last year. About 27% plan to be fully powered by on-site energy by then, compared to only 1% today.
AI is increasing energy demand: The average size of data centers is projected to double over the next decade—from 175MW today to 375MW.
Sustainability still matters: While carbon reduction is no longer the top priority, 95% of developers say their sustainability goals remain in place.
The report underscores the urgent need for reliable, scalable energy solutions as data centers—and AI—continue to grow.
Microgrids: Microgrids act as self-contained energy ecosystems, blending sources like solar, thermal, CHP, and batteries. They offer short- and long-term solutions for powering critical operations while advancing cost savings and climate goals. As data center energy demands grow, microgrids provide a practical and scalable solution to rising costs, grid constraints, and sustainability pressures. By combining on-site generation, energy storage, and smart load management, microgrids can:
Deliver reliable power—often faster than traditional grid infrastructure upgrades.
Lower energy costs, sometimes outperforming utility rates
Increase resilience by operating independently during grid outages (“island mode”)
Support decarbonization by integrating renewable and low-carbon energy sources
Improve Building and Infrastructure Efficiency
Energy efficiency is key to cutting both data centers' environmental impact and operating costs—without sacrificing performance. It’s all about using energy and resources more wisely to get the most output with the least input. Efficient facilities spend less on heating, cooling, and equipment running daily. Here are a few ways to improve energy efficiency:
Run Energy Audits and Track Performance:
Regularly review your facility’s energy use with audits and ongoing analysis to spot where energy is wasted.
Measure your power usage effectiveness (PUE) to see how much of your total energy goes into computing.
Compare your facility's energy consumption to other data centers in the U.S.
Focus on areas that use the most energy—like outdated cooling systems or idle servers—so you can make smart, targeted upgrades.
Choose energy-efficient hardware
Choose hardware that uses less power—like energy-efficient processors, SSDs, and optimized power supplies.
Ensure servers and IT equipment are set to enter power-saving modes when not in heavy use.
Consolidate Underused Servers
Many servers run well below their full capacity. You can significantly cut costs by combining workloads and eliminating unnecessary hardware. (Shutting down just one server can save around $500 in energy, $500 in software licenses, and $1,500 in yearly maintenance.)
Use Smarter Data Storage
There are plenty of tools that help cut down how much data you store—and store it more efficiently.
For example, deduplication software can eliminate duplicate files and reduce storage needs by over 95% in many organizations.
Cut Energy Waste from UPS Systems
Choose energy-efficient UPS systems and look for ones with an eco-mode to reduce power loss.
Make sure they’re loaded adequately for best performance.
Running in eco-mode alone can lower your data center’s energy costs by up to 2%.
Upgrade HVAC Systems
Today, many centers are using AI-powered sensors to manage temperatures more efficiently—cooling only the areas that need it instead of blasting cold air through the whole building.
Use a Water-Side Economizer: Swap out mechanical chillers with cooling towers to produce chilled water more efficiently—this can cut cooling water costs by up to 70%.
Install In-Rack or In-Row Cooling: Bring cold air directly to the servers instead of cooling the room. These systems can use up to 3x less energy in high-density racks than traditional methods.
Adjust Humidity Settings: Most IT gear can handle a wider humidity range than expected. For example, BNY Mellon increased humidity setpoints and cut system runtime from 80% to 20%. If humidification is needed, use efficient options like misters, foggers, or ultrasonic units—eBay saved $50,000 a year with ultrasonic humidifiers and saw a 2-year payback.
Use an Air-Side Economizer. When weather allows, use outside air to cool the data center. NetApp used this strategy to cut its cooling energy use by nearly 90%.
Add Smart Controls and Sensors: Match cooling output to actual server demand using sensors and automation. Tools like Data Center Infrastructure Management (DCIM) help track and adjust airflow, equipment use, and energy—potentially reducing costs by up to 30%.
Train Your staff
Most IT professionals don’t get formal training in energy efficiency. But sharing a few simple concepts can spark ideas and get your team thinking about innovative ways to save energy. Develop a culture of conservation by training your team and raising awareness around energy-smart habits in the data center.
Moving Forward
The future of data centers will rely on balancing growth with sustainability and efficiency. As digital infrastructure expands, reducing energy consumption in data centers is not just a technical challenge—it’s a business, environmental, and societal imperative.
By embracing energy efficiency measures, investing in renewables, and leveraging cutting-edge technologies, data centers can transition from power-hungry giants to leaders in sustainable innovation.
Forward-thinking organizations that act now won’t just save on operational costs—they’ll win the trust of environmentally conscious customers, investors, and regulators.
Need Help Making Your Data Center More Efficient?
Alco Building Solutions works with organizations across the U.S. to deliver energy efficiency upgrades, on-site solar and battery storage, and microgrid solutions. Our turnkey services reduce operating costs, enhance energy reliability, and align your data center with sustainability goals.
Together, we can build a brighter energy future.