Sara Hsu
After China revealed its own homegrown large-language model, DeepSeek, in January 2025, the artificial intelligence (AI) competition intensified. Much of the conversation on this new technology has focused on semiconductors or model speeds, but the race is very much dependent on several upstream factors: energy, rare earth elements, and talent. These critical inputs into the AI industry face vastly different structures in the two countries and may determine the pace and scale of AI innovation.
Energy: Powering the AI Revolution
AI models use massive amounts of energy to power their computations. Ensuring a consistent and growing energy supply to power data centers and cool servers is now an essential part of national AI strategies. The United States and China have different energy ecosystems, with alternative methods of pricing, regulating, and sustaining energy for AI endeavors.
Due to increasing investment in electricity generation, the energy requirements of AI data centers have placed a great amount of pressure on local power grids. A notable incident occurred in July 2024, when 60 data centers in Northern Virginia were disconnected from the grid due to a surge protector failure. This incident forced operators to rapidly reduce power generation to prevent widespread outages, and demonstrated the challenges that utilities face in providing data centers with growing amounts of power.
In addition to energy supply, electricity prices and supplier choice are factors that AI producers consider. Electricity produced from U.S. energy sources faces prices that are market driven, with high regional variation due to local energy resources, infrastructure, and regulation. Deregulated markets in some states allow consumers to choose suppliers. In order to maintain a stable supply of data output, data centers often negotiate long-term contracts for electricity.
In contrast to the United States, China’s energy industry is centralized and planned. The government guides the location of data hubs to optimize national grid loads. The Eastern Data, Western Computing plan, for example, pairs data centers with renewable energy in underdeveloped western regions such as Guizhou, which has abundant hydropower. In Sichuan, the Tianfu Intelligent Computing Center is powered by surplus hydro and wind power in a tightly integrated system that supports various sectors.
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