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China vs U.S.: Race to Generate Power for AI Data Centers as Electricity Demand Soars
The International Energy Agency (IEA) forecasts that in the next five years, the global demand for power (electricity) is set to grow roughly 50% faster than it did during the previous decade – and more than twice as fast as energy demand overall. That tremendous increase in demand is due to power hungry AI data centers. There’s also electric cars and buses, electric-powered industrial machines, and electric heating of homes.
Global AI growth will be contingent on generating more power for data centers:
- Global data center power demand is now expected to rise to a record 1,596 terawatt-hours by 2035 – +255% increase from 2025 levels.
- The U.S. is set to remain the leader in energy consumption with a +144% surge in demand over this period, to 430 terawatt-hours.
- China’s demand is projected to rise +255%, to 397 terawatt-hours.
- European demand is expected to surge +303%, to 274 terawatt-hours.
- New data centers coming online between now and 2030 will need more than 600 terawatt-hours of electricity. This is enough to power ~60 million homes.
Power for AI Data Centers: China vs U.S.:
China is currently ahead of the United States in generating and building out power infrastructure to support AI data centers, a phenomenon sometimes described by industry observers as an “electron gap.”
China’s rapid, centralized expansion of electricity generation—including both massive renewable projects and traditional, dispatchable power—has created a significant capacity advantage in the race to support AI workloads, which are increasingly limited by energy availability rather than just chip access.
Key factors in China’s power advantage for AI include:
Massive Generation Growth: Between 2010 and 2024, China’s power production increased by more than the rest of the world combined. In 2024 alone, China added 543 gigawatts of power capacity—more than the total capacity added by the U.S. in its entire history.
Significant Surplus Capacity: By 2030, China is projected to have roughly 400 gigawatts of spare power capacity, which is triple the expected power demand of the global data center fleet at that time.
“Eastern Data, Western Computing” Initiative: China is actively shifting energy-intensive data centers to its resource-rich western regions (like Inner Mongolia) while powering them with surplus renewable energy, such as wind and solar.
Lower Costs and Faster Buildouts: Data centers in China can pay less than half the rates for electricity that American data centers do. Furthermore, projects in China can move from planning to operation in months, compared to years in the U.S. due to faster permitting and fewer regulatory hurdles.
Conclusions:
While the U.S. currently leads in advanced AI chips and model development, it is facing a severe “energy bottleneck” for new data centers, with some requiring over a gigawatt of power. U.S. power demand has remained relatively flat for 20 years, resulting in a lag in building new capacity, whereas China has traditionally built power infrastructure in anticipation of high demand. Morgan Stanley has forecast that U.S. data centers could face a 44-gigawatt electricity shortfall in the next three years.
Despite China’s advantage in energy, U.S. export controls on high-end AI chips (such as Nvidia’s GPUs) have acted as a significant constraint on China’s actual AI compute power. This has led to a situation where the U.S. has the best “brains” (chips) but limited power to run them, while China has the “muscle” (energy) but limited access to top-tier AI brains.
However, the rapid improvements in Chinese AI models (such as DeepSeek), which are more energy-efficient and optimized for lower-tier hardware, may help mitigate this constraint.
References:
https://www.iea.org/reports/electricity-2026
https://x.com/KobeissiLetter/status/2023437717888250284
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