As Donald Trump prepares to take office (again), the future of the tax policy that underlies clean energy development in the United States has never been more in doubt. Will the clean energy tax credits survive? What about advanced manufacturing? Or will it just be the electric vehicle credits that get tossed aside?
In any case, one thing seems far closer to certain: Big companies, especially large technology companies, will continue to buy renewable and clean power to fulfill their own sustainability goals and keep up their massively expanding data center operations. For them, speed may be the thing that matters most, and reasonable costs and carbon abatement will have to come along with it.
From 2025 to 2028, Morgan Stanley estimates that there will be 57 gigawatts worth of demand from new data centers, with around 6 gigawatts of that currently under construction, and a substantial shortfall in available power to build everything hyperscale technology companies want. This means that there will be a huge need to buy power, no matter the tax credit situation, which would mean continued upward pressure on prices.
Even before the election, power purchase agreement prices for solar power were creeping up due to tariffs on solar equipment, according to LevelTen Energy. Those will likely be maintained and could be ramped up in the new administration.
“Repeal of the tech neutral tax credits and of the manufacturing production tax credits has the potential to increase PPA prices by almost 40%,” Nidhi Thakar, the senior vice president for policy of the Clean Energy Buyers Association, told me, referring to two of the most powerful provisions of the Inflation Reduction Act. She added that repeal would “essentially have an inflationary effect.”
“We have this opportunity right now to capture that economic development if we do things right,” Thakar said. “That is going to require having critical policies in place that are going to support the deployment of more clean firm resources on the grid.”
At least so far, the prospect of repeal has not slowed energy procurement among the biggest buyers. This month, Alphabet announced a $20 billion investment plan with Intersect Power and TPG to build carbon-free power near datacenters with the hope of bringing power and data centers online more quickly. Meta, meanwhile, announced earlier in December that it would build a $10 billion data center campus in Northeast Louisiana, complete with gas and renewable power provided by Entergy, the local utility. The project will come with “at least” 1.5 gigawatts of new renewable power, Entergy said; it also filed an application with the Louisiana utilities regulator for over 2 gigawatts of new gas-fired power plants, including two plants adjacent to the data center site, according to S&P Global Commodities Insights.
While a “double digit” increase in power purchase agreement sale prices could result from tax credits vanishing, there is still “more demand for renewable energy than supply for a whole bunch of reasons,” Peter Freed, the former director of energy strategy at Meta and the founding director of the consultancy Near Horizon Group, told me.
“Obviously the tax credits are pretty central to the pricing on projects,” he said.
Freed was enthusiastic about grid technologies that could enhance capacity, but he also acknowledged “it is very likely we’re going to have a variety of compromises that have to be made over the course of next seven, eight, nine years, in terms of how we’re going to accommodate load that’s coming in the cleanest possible way.”
“That probably means we’re seeing more gas built,” he added.
A significant portion of that gas could be built on-site. Anything involving the grid — whether fossil or renewable — involves large investments of cash and time for hyperscalers and developers. “Given the increasing time required to connect to power grids, especially in the U.S., we believe there could be more upcoming ‘off grid’ approaches to powering data centers,” Morgan Stanley analyst Stephen Byrd wrote in a note to clients. “Batteries and smaller gas-fired turbines could be combined with large combined cycle natural gas turbines to provide a robust power source.”
Elon Musk’s xAI has done this the quick-and-dirty way by installing mobile natural gas generators to power its facility in Memphis. GE Vernova, the turbine manufacturer, is also “having direct conversations with hyperscalers for gas orders,” according to Jefferies analyst Julien Dumoulin-Smith in a note to clients, with the first order from a hyperscaler possibly coming in the second half of next year.
Gas isn’t the only answer, however — at least not on its own. A group of energy researchers from Stripe, Paces, and Scale Microgrids, wrote in a white paper published mid-December saying that solar microgrids could provide a “fast, scalable, clean, and cheap enough” option for data center power.
These “off-grid solar microgrids” could potentially be put into operation in “around two years” and would combine solar panels, batteries, and some natural gas backup. Installed across the Southwest, they would be able to power some 1,200 gigawatts of data center demand with 90% solar power, according to Scale Microgrids’ Duncan Campbell, at costs below repowering Three Mile Island. A 44% solar system would be “essentially the same cost” as off-grid gas turbines, the whitepaper said.
No matter what solution hyperscalers pursue — bringing their own power behind the grid, locating near power on the grid, or building out more clean, firm power on local grids — the question will ultimately always be how fast they can get online.
“I think people are initially thinking about colocating a large load with a project — renewable, gas, or anything else — as a fact track to getting load online, and there’s some truth to that,” Freed told me.
“My perspective as someone who is adding new load is that you should be indifferent to location for generation,” Freed said. “What you really should be caring about is when you can interconnect and turn lights on at the scale you desire.”
Courtesy of Harbinger
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