NEW YORK — The cost of generating electricity from natural gas-fired plants in the United States has reached its highest level in at least 17 years, according to analysis from Lazard, and is expected to climb further amid surging power demand from data centers and artificial intelligence infrastructure.

Lazard’s latest Levelized Cost of Energy report highlights how rising fuel prices, construction costs and operational expenses have pushed natural gas power costs upward. The findings come as the U.S. grapples with unprecedented electricity needs from technology companies building massive data centers to support AI training and cloud computing.

Natural gas remains the dominant source of electricity generation in the U.S., accounting for a significant share of the power mix. However, the economics of gas-fired plants have deteriorated in recent years as renewable energy costs have fallen and fuel price volatility has increased. Despite these challenges, gas plants continue to provide essential dispatchable power, particularly during periods of peak demand or when renewable output is low.

The report underscores a broader trend in the energy transition. While solar and wind have achieved record-low costs in many regions, the intermittency of renewables requires backup from flexible sources like natural gas. This dynamic has kept gas plants relevant even as their levelized costs rise.

Data center demand is a primary driver of the projected increases. Technology giants are investing billions in new facilities across the country, many in regions reliant on natural gas for reliable baseload power. The AI boom has accelerated these builds, with hyperscalers seeking constant, high-volume electricity to power servers and cooling systems.

Analysts estimate that data centers could double or triple power consumption in certain markets over the next decade. This surge strains existing infrastructure and boosts the value of gas-fired generation, which can ramp up quickly to meet fluctuating loads.

Lazard’s analysis incorporates multiple factors, including capital costs, fuel expenses, operations and maintenance, and financing assumptions. The firm’s levelized cost metric provides a standardized way to compare different generation technologies over their lifetimes.

The 17-year high for gas power costs reflects a combination of inflationary pressures on construction and higher expected fuel prices. Natural gas prices have been volatile, influenced by domestic production trends, liquefied natural gas exports and global supply dynamics.

Renewable energy sources, particularly solar and onshore wind, continue to offer lower levelized costs in many scenarios. Battery storage costs are also declining, improving the economics of intermittent renewables. However, the full system costs of integrating high levels of renewables, including transmission upgrades and backup capacity, complicate direct comparisons.

Natural gas plants benefit from existing infrastructure and the ability to provide firm capacity. Many utilities and grid operators rely on them to ensure reliability, especially in regions with growing peak demand from electrification of vehicles, buildings and industry.

The Lazard report arrives as policymakers debate the future of the U.S. energy mix. The Inflation Reduction Act has accelerated renewable deployment through tax credits, but recent proposals in Congress could alter incentives. Uncertainty around federal policy adds complexity for developers of both gas and renewable projects.

Regional variations play a significant role. In areas with abundant renewable resources and supportive policies, solar and wind often undercut gas on cost. In other markets, particularly those with constrained transmission or high reliability needs, gas retains an edge.

Data center operators are increasingly signing power purchase agreements with various generators. Some are pairing renewables with storage and gas backup to achieve both cost efficiency and reliability. This hybrid approach reflects the practical challenges of meeting 24/7 demand with variable sources.

The power sector faces a capacity crunch in coming years. Retirements of older coal and nuclear plants, combined with rising demand, require significant new buildout. Natural gas is often the fastest option to bring online, though environmental regulations and permitting delays can extend timelines.

Environmental groups have criticized reliance on gas, citing methane emissions and long-term climate impacts. Advocates for gas argue that modern combined-cycle plants are far cleaner than older facilities and serve as a bridge to a lower-carbon future.

Utilities are navigating these tensions by pursuing diverse portfolios. Many are adding solar, wind and storage while maintaining or expanding gas capacity for reliability. The Lazard analysis helps inform these decisions by quantifying costs across technologies.

For investors, the report highlights opportunities and risks. Gas plant developers may benefit from near-term demand but face potential stranded asset risks if decarbonization accelerates. Renewable developers continue to see favorable economics, though integration costs and policy shifts introduce uncertainty.

The data center boom is reshaping power markets nationwide. States like Texas, Virginia and Georgia have seen massive investments, straining grids and prompting new generation proposals. Natural gas infrastructure in these regions positions it to capture incremental demand.

Longer-term forecasts suggest electricity demand growth will outpace recent decades due to AI, electrification and manufacturing reshoring. Meeting this demand affordably and reliably will require coordinated investment across the energy value chain.

Lazard’s findings align with other industry analyses showing rising costs for thermal generation. Fuel price forecasts, capital cost inflation and regulatory compliance all contribute to the trend.

The report also examines offshore wind, nuclear and other technologies. While nuclear offers carbon-free baseload power, high upfront costs and long construction times limit near-term deployment. Small modular reactors could change that dynamic in the 2030s.

Storage costs continue declining, enhancing renewables’ competitiveness. Batteries paired with solar can shift output to evening peaks, reducing reliance on gas peaker plants.

Transmission remains a bottleneck. Upgrading the grid to move power from resource-rich areas to demand centers is essential for optimizing the system cost-effectively.

Policymakers face difficult trade-offs. Supporting rapid renewable deployment can lower long-term costs and emissions, but ensuring reliability during the transition may require retaining or adding gas capacity.

The Lazard Levelized Cost of Energy report is widely referenced by utilities, developers and investors for its independent benchmarking. This year’s edition reflects updated assumptions on technology costs, capacity factors and financing.

As data center demand accelerates, power costs across the board are under scrutiny. Companies are exploring everything from on-site generation to long-term contracts with diverse suppliers to manage expenses and risks.

The energy transition is entering a more complex phase. While renewables dominate new capacity additions, dispatchable resources like natural gas remain critical for grid stability. Balancing these elements will determine the cost and reliability of U.S. electricity in the coming decade.

Monday’s market movements reflected broader commodity trends. Energy stocks advanced as oil prices rose on geopolitical developments, aligning with the sector’s sensitivity to supply risks.

For natural gas specifically, futures prices have responded to weather forecasts, storage levels and export demand. LNG terminals in the U.S. Gulf Coast continue shipping cargoes globally, linking domestic prices to international benchmarks.

The interplay between gas power costs and data center economics will shape corporate decisions. Hyperscalers seeking to minimize expenses may favor regions with abundant renewables and supportive transmission, while others prioritize reliability in gas-heavy markets.

Utilities planning new plants must weigh Lazard’s cost metrics against local conditions, regulatory hurdles and customer needs. The report serves as one input among many in a multifaceted decision process.

As the U.S. navigates record electricity demand growth, the cost of natural gas power reaching multi-year highs highlights the challenges ahead. Data centers are accelerating the need for new generation, forcing a reassessment of the optimal energy mix for reliability, affordability and emissions goals.

The coming years will test the industry’s ability to deliver power at scale while managing costs. Lazard’s analysis provides a valuable snapshot of current economics, informing strategies across the power sector.