The Scoop
Some of the biggest US power companies are at odds with senior Trump administration officials on how to fill the country’s looming electricity deficit and beat China at the AI race.
Interior Secretary Doug Burgum told Semafor’s World Economy Summit last week that Washington’s push to fast-track permitting for the development of new energy resources won’t apply to “intermittent” power sources. The continued use of federal tax credits to replace fossil fuels in the electric grid with renewables “would be catastrophic for our country,” he said. Fuels that can run cheaply around the clock, including coal, gas, and nuclear, are the key to US competitiveness on AI, added Burgum, who also chairs the National Energy Dominance Council.
But executives of companies actually managing the delivery of power to new data centers have a more nuanced view: Even as rising trade barriers with China make some technologies more expensive, renewables plus batteries are still the cheapest and fastest way to put new electrons on the grid.
“Before, I always argued that you need some gas in the [power] mix to make it cheaper,” said Andrés Gluski, CEO of the multinational energy company AES, one of the top power providers for data centers in the US, at WES. “Now, I would argue that you need renewables in the mix to make it cheaper. Over the next five years, the bulk of new energy in the US is going to be renewables.”
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Tim’s view
It’s a favorite game of US politicians to pretend to be agnostic about energy technology. Presidents Barack Obama and Joe Biden played up the need for “all of the above” energy sources. In his comments last week, Burgum said the Trump administration doesn’t have “any hostility towards renewables.” One might think the urgency of the AI race would indeed break down ideological barriers for policymakers on both sides of the fossils vs. renewables debate. But for a leader like Burgum, whose home state of North Dakota is a top oil and gas producer, the attachment to hydrocarbons runs bone-deep, and can lead to some myopia about the real costs and timelines for various options on the data center energy menu.
“Any state in this country that is saying ‘We’re not going to allow natural gas pipelines, we’re going to bank on wind and solar,’ they’re not going to have any AI data centers,” Burgum said. “There’s not some magical solution that’s appeared yet where we can have cheap and affordable load-shifting by using batteries in conjunction with intermittent [power sources].”
Utility CEOs, on the other hand, have customers, regulators, and shareholders watching their books. And in my conversations with them at the World Economy Summit, it was clear that they still see renewables as the main solution: Nuclear will help eventually but not in the next few years; gas is cheap and reliable as a fuel, but expensive and backlogged in terms of the hardware needed to use it; and coal is a non-starter for most tech companies, which may be somewhat willing to compromise their climate goals in the interest of speedy power but not if it means bearing responsibility for a large shift backward to the country’s dirtiest energy source.
Trump’s recent executive order that aims to prop up coal mining and coal-fired power generation may cause some utilities to moderately extend the lifetime of existing coal plants rather than race to shut them down, said Bob Frenzel, CEO of the midwestern utility Xcel Energy. The power industry itself, as well as its suppliers and regulators, hasn’t been designed for any kind of growth for years, he said, so it will take some time to catch up. But a major coal renaissance isn’t in the cards: “We’ve got newer and more cost-effective forms of generation: We have wind, we have solar, we have storage.”
Batteries will be among the technologies whose cost is most elevated by trade barriers with China. But if the choice for serving new data center customers is between utility-scale batteries and a new $50 million substation, batteries still win, said Calvin Butler, CEO of Exelon, the largest regulated utility company in the US.
If the Trump administration is serious about helping power companies win the AI race, it may need to consider carving out tariff exemptions for utility-scale batteries. The more the US tries to lean away from renewables and batteries — whether through trade barriers, scaling back tax incentives, or punting them to the back of the permitting reform queue — the more of a “bifurcation” there will be between their price in the US and their price everywhere else, Gluski said. That risks needlessly handicapping US AI ambitions.
Room for Disagreement
Renewables might be moving fast, but there’s still a growing role for natural gas in the future US electric grid, and while a turnaround in the downward trajectory of coal demand is highly unlikely, gas demand is poised to skyrocket. Gas is already the primary energy source for data centers, supplying about 40% of demand. And as data center demand grows, it will put tech companies increasingly in competition with US LNG exporters, who may find they have less fuel available to sell abroad.
Notable
- The US needs a more pragmatic approach to data centers that prioritizes clean energy, said Hank Paulson, Treasury Secretary under US President George W. Bush. “Sticking with gas would be to sacrifice speed of development and bet against the rapid decline of solar and battery storage costs,” he wrote in the Financial Times.