Embodiments of the invention relate generally to the field of power management of computer systems, and more particularly to a method and apparatus for dynamically allocating power to servers in a server rack. The method comprises: measuring power consumption of a computer system having one or more servers; estimating probability distribution of power demand for each of the one or more servers, the estimation based on the measured power consumption; estimating performance loss via the estimated probability distribution; computing power capping limits for each of the one or more servers, the computation based on the estimated probability distribution and the performance loss; and dynamically allocating the power capping limits to each of the one or more servers by modifying previous power capping limits of each of the one or more servers.