The Scoop
Some of the world’s largest makers of gas-fired electricity turbines are holding back on a full-scale push to ramp up manufacturing in response to surging demand from data centers and other big power customers, executives told Semafor.
Tech leaders are desperate for electrons to power their AI ambitions. But the existing grid is already overwhelmed, renewables can be intermittent, and nuclear is both slow and expensive to build. And so gas turbines are experiencing a “gold rush,” Bill Newsom, CEO of Mitsubishi Power Americas, said on the sidelines of the CERAWeek conference in Houston last week.
Turbine manufacturers are now completely sold out for years to come. Between 2023 and 2024, orders in North and South America increased five-fold; if there had been sufficient manufacturing capacity, they could easily have expanded seven-fold, Newsom said. Delivery times have doubled in the last year or so; a turbine order placed now won’t be delivered until at least 2028, and the line is getting longer every day. Prices are also spiking — up threefold in the last few years, according to NextEra Energy CEO John Ketchum — and poised to rise further because of US President Donald Trump’s new tariffs on steel and aluminum imports.
That all sounds like a lucrative opportunity for turbine manufacturers — which can be counted on one hand — to scale up and capture new customers. Yet the industry is dragging its feet, out of concern that the boom in power demand, driven by AI and the broader electrification across the economy, could go bust sooner than expected.
“All of us have gone through at least two recent boom and bust cycles, and that’s still in the DNA,” said Tim Holt, a member of the executive board and labor director of Siemens Energy. “My gut feeling tells me that if AI really works and gets the utilization that everybody predicts, we’re going to see that growth [in gas turbine demand] continue. But it’s a bit hard to make hundreds of millions of dollars in capex decisions based on that feeling.”
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Tim’s view
There’s a widely held view within the Trump administration and the oil and gas industry that more gas-fired power generation is key to addressing US electricity shortfalls. Domestic gas is cheap and plentiful.
Whether or not the White House’s fossil fuel policies play out as the administration hopes — and the strategy is at times at odds with itself — all of that new gas production is of little use without turbines to convert it to electricity. Big Tech is quickly discovering that the backlog for turbines is among the biggest bottlenecks the industry’s power ambitions face — and, as Ketchum told me last week, a powerful argument in favor of renewables.
During fracking’s early days in the 2000s, the price of natural gas plummeted. Independent power companies spotted a chance to offer cheaper electricity, and raced to secure turbines. But the market was quickly saturated, and turbine producers were stuck with canceled orders, unsold inventory, unused factory space, and laid-off employees, Newsom said.
Now, looking at orders from Big Tech, Newsom believes that between efforts to improve data centers’ energy efficiency and competition from alternative power sources, much of the predicted demand for turbines won’t actually materialize. In a bid to secure their spot in the queue, tech companies are placing orders for turbines that he expects they ultimately won’t need. While Mitsubishi Power is planning to ramp up production by about 30%, he said, that falls short of what current demand calls for.
“If you plan for the full amount [projected in data center growth forecasts], you’re going to overbuild your capacity,” he said. “The two worst outcomes are missing an order, and then overshooting them.”
None of the big turbine producers have announced plans for new manufacturing facilities, Siemens Energy’s Holt said. Aside from the uncertain demand, they are also held back by labor shortages and the limited supply of the specialized components they need. For turbines that do get delivered, there are also not enough qualified contracting firms to install them, further pushing back the time between placing the order and operation.
Holt added that Siemens Energy is still recovering from a series of breakdowns in its wind farms over the last few years, which at the time crushed its stock price and cost it billions of dollars. Those problems stemmed from the rapid scale-up of the company’s wind turbine manufacturing capacity, Holt said, and taught it a painful lesson about the risks of rushing new technologies. Gas turbines, by comparison, are more established, but, Holt said, “quite frankly, we cannot afford to have another hiccup.”
Room for Disagreement
One possible fix, Newsom said, would be if tech companies were willing to sign long-term turbine supply contracts, rather than one-off sales. That would make it easier for manufacturers to ask their shareholders and financiers for permission to expand capacity. So far, that hasn’t happened.
Still, he said, the outlook for durable turbine demand is better now than it was in the early 2000s. Big Tech companies have far bigger balance sheets than independent power producers, and AI is clearly not going away anytime soon. “And frankly speaking,” he said, “they have the wherewithal to be able to pay a premium to win the AI race.”
Notable
- Trump will meet with top energy executives at the White House this week. Among them will be Harold Hamm, billionaire founder of Continental Resources, who warned last week that “when you get below the cost of supply, you can’t ‘drill, baby, drill.’”