US-China AI rivalry shifts to electricity cost advantage
The US-China AI competition is now centered on electricity costs as AI models become commoditized. With models increasingly interchangeable, service pricing is driven by energy expenses. China's advantage lies in its ability to deploy solar power at scale: last year, the levelised cost of solar dropped to about two US cents per kWh. Locating data centers in western China near solar farms avoids high transmission costs from the industrial east. This energy cost differential could determine which nation dominates AI services.
Key facts
- AI models are becoming commodities like steel or aluminum
- Service prices are driven by electricity cost
- Levelised cost of solar power dropped to about two US cents per kWh in 2024
- Transmission costs from western deserts to eastern industrial belt can double electricity price
- Rational choice is to locate data centers in western China near solar farms
- China has deployed solar farms in Gobi desert, Gansu province
- US-China AI war now centers on electricity output and cost
- Value of owning an AI model is declining
Entities
Locations
- China
- United States
- Gobi desert
- Gansu province
- Jinta county
- Hongliuwa Photovoltaic Industrial Park