Data centers and AI infrastructure require massive amounts of electricity, and demand is only increasing. And as we onshore manufacturing, electricity requirements are going up in the industrial sector too. 

A key tax credit — the Energy Efficient Home Improvement Tax Credit (25C) — can help us avoid or reduce the need for expensive new power plants and transmission lines. By cutting peak demand from households across many parts of the country, 25C cost-effectively makes room for growing energy demand while also helping American households save money and make their homes more comfortable. 

New analysis from Rewiring America shows that when households install technologies supported by 25C — specifically, efficient electric heating and cooling equipment, home insulation, and weatherization — they reduce their energy consumption on the hottest and coldest days of the year. 

These periods are when air conditioners and home heating systems are working their hardest to keep homes comfortable. A heat pump and weatherization package that qualifies for 25C will reduce electricity demand in the summer by replacing a less efficient air conditioning system and in the winter when switching from electric resistance heating, all while reducing the amount of energy needed to keep a home comfortable year-round by insulating and air sealing a home.

This is especially important during a time of explosive growth in both data centers and domestic manufacturing, when freeing up grid capacity for high-priority economic growth can help keep energy rates low for households and industry alike. 

As part of a broader menu of cost-effective measures to manage peak load growth — including virtual power plants and further “curtailment-enabled headroom,” as well as distributed solar and energy storage¹ — greater uptake of the Energy Efficient Home Improvement Tax Credit (25C) in the residential sector would bring a significant reduction in peak consumption. 

In fact, seven states would see annual peak demand reduction greater than 1GW from widespread use of technologies supported by 25C. These include states like Texas and Arizona, home to two of the top five fastest-growing “hubs” for data centers, while also presenting opportunities for peak reductions that could accommodate data center and manufacturing investment and growth in states like Florida, Louisiana, and the Carolinas. 

This potential reduction in peak residential electricity use from the widespread adoption of heat pumps and insulation is equivalent to the energy required to power hundreds of data centers running at full capacity.

Peak reductions in states like Alabama, Tennessee, and Washington could also support the equivalent of more than a dozen data centers.

“Domestic manufacturing is on the rise while demand for AI is going through the roof. But without the energy to power all this growth, our economy can't meet its full potential,” said David Friedman, Rewiring America senior director, federal policy. “Delivering the home upgrades made possible by the Energy Efficient Home Improvement Tax Credit means not only significantly more room on the grid, but also bill savings and greater comfort for American households.”  

The methodology and assumptions used in this analysis are available here. Read more about the impacts of the Energy Efficient Home Improvement Tax Credit (25C) and the Residential Clean Energy Tax Credit (25D) on job creation here and on household savings here.

1. Not modeled here is the further reduction in peak demand states across the country would see with widespread adoption of residential solar and storage technologies, made more affordable by the Residential Clean Energy Tax Credit (25D). Rewiring America is working on this modeling for a future analysis. 

2. States that are among the faster growing hubs for data centers: https://www.upwind.io/industry-research/data-center-powerhouses