AI explosion to boost demand for clean energy
Clean energy has always been part of the energy transition, but as the artificial intelligence (AI) sector gains traction the importance of green sources of energy is becoming increasingly crucial.
AI energy requirements are set to surge dramatically, potentially straining current energy grids and infrastructure. A December report from Grid Strategies predicts energy providers will need to add up to 128 gigawatts (GW) of new capacity by 2029 to keep up with demand, a noteworthy increase from an estimate of 39 GW just last year.
Data centers are projected to consume up to 35 GW by 2030. Innovative sustainable energy solutions and cooling technologies will need to be developed to meet demand without derailing decarbonization efforts.
The AI industry’s energy demands are being further amplified by the construction of new chip-manufacturing facilities.
To promote chip production to the US, President Joe Biden's Chips and Science Act has pledged billions to Intel (NASDAQ:INTC), Taiwan Semiconductor Manufacturing Company (TSMC) (NYSE:TSM) and Samsung Electronics (KRX:005930) to help them expand their American production capacity.
Intel is updating its facilities in Oregon, New Mexico and Arizona, and has plans to finalize new fabs in Ohio in the coming years. TSMC plans to eventually operate three fabs in Arizona, while Samsung is expanding its operations in Texas to include two factories, a research and development factory and a packaging facility.
These new facilities, with their substantial energy needs, will increase an already significant strain on existing infrastructure. Demand will necessitate upgrades to the existing power grid and require expansions to accommodate the increased load of multi-year operations.
The source of this additional energy will be a crucial consideration, as a shift towards renewable energy sources will be essential to mitigate the environmental impact of ever-growing energy demands.
Nuclear and geothermal energy emerged as two promising carbon-free options in 2024. Microsoft (NASDAQ:MSFT), for instance, has signed a 20 year power purchase agreement with Constellation Energy (NASDAQ:CEG) to purchase carbon-free electricity from the soon-to-be-restarted Unit 1 reactor at Three Mile Island.
Similarly, Amazon’s (NASDAQ:AMZN) Climate Pledge Fund joined a US$500 million funding round in October to back a startup company, X-energy, that’s developing a Generation IV high-temperature gas-cooled pebble-bed nuclear reactor. X-energy's Xe-100 is a small modular reactor (SMR) that is more compact, simpler and safer than traditional reactors.
News of Amazon’s deal broke just a week after Alphabet’s (NASDAQ:GOOGL) Google announced a power purchase deal with Kairos Power to deploy 500 megawatts (MW) of nuclear power by 2030 using reactor technology.
More recently, on December 4, Meta (NASDAQ:META) communicated a request for proposals to nuclear developers, saying it is seeking up to 4 GW of new nuclear power for its data centers. Welcoming collaboration from both SMRs and larger nuclear reactors, Meta emphasized the need for early engagement and scaled deployments to reduce costs.
Oklo (NYSE:OKLO), a company with strong ties to OpenAI CEO Sam Altman due to his early investment and role as chairman of the board, signed a deal in late December with data center operator Switch to build SMRs to power its data centers. Switch’s clients include Google, NVIDIA (NASDAQ:NVDA) and Tesla (NASDAQ:TSLA), among others.
In addition to nuclear energy, geothermal energy is a viable solution for data centers' high energy consumption. Google's partnership with NV Energy leverages what’s known as a Clean Transition Tariff to secure 115 MW of geothermal power for Google’s data centers, outsourced from Fervo Energy's enhanced geothermal system.
Meta is also pursuing geothermal sources for its energy needs, signing a power purchase agreement with Sage Geosystems in August. The first phase of the project is scheduled to become operational by 2027.
Furthermore, the increased power consumption of AI technologies necessitates more efficient cooling methods. According to analysis from Zainab Gilani, a research associate at the Cleantech Group, liquid cooling offers superior performance and scalability compared to traditional air cooling, particularly direct-to-chip cooling.
Companies like NVIDIA and Intel are working to advance liquid cooling solutions for data centers, including collaborating with cooling technology providers like CoolIt Systems.
In its global outlook report for 2025, BlackRock explains how investors could benefit from this trend, highlighting the utility sector as a potentially attractive avenue for indirect investment in the AI boom.
EVs, tariffs and trade under Trump
The EV market grew globally in 2024, but in the US it faces a complex and uncertain landscape.
While consumers have more EV options than ever after a wave of newly introduced models from automakers like Ford (NYSE:F), Toyota (NYSE:TM) and Rivian (NASDAQ:RIVN), adoption initiatives put in place by the Biden administration are at risk of being defunded or repealed under President-elect Donald Trump.
For example, Trump wants to eliminate the Inflation Reduction Act, although he would need Congressional approval.
In a December interview with Yale Environment 360’s Elizabeth Kolbert, Professor Leah Stokes of the University of California Santa Barbara said corporate lobbying will be instrumental in retaining some aspects of the act.
“The things that will be on the table are largely (clean energy) tax credits because the grants will be mostly out the door by the time the Biden administration wraps up at the beginning of January,” she said. “These tax credits are benefiting companies, and you’re already seeing the reporting that for even the most vulnerable tax credits, which I would assume are the EV tax credits, there’s a constituency out there trying to defend those. Companies have made investments that take years to really come to fruition, and they can’t really turn around on a dime.”
Tax incentives to spur investment have also created thousands of jobs, particularly in Republican states. This may encourage Trump to selectively choose which programs to cut.
“When you think about all the manufacturing investments that are in these Republican districts, it’s not just the manufacturing jobs that matter,” Stokes continued.
“You start to realize that all those investments in making stuff in America, they want to sell that stuff in America too. And in order to sell that stuff in America, they need the other tax credits for deployment."
In her view, the IRA may turn out to be "a much stickier policy" than many expect.
One additional factor to consider is Trump's approach to international trade, particularly with regard to tariffs. Given the importance of lithium in the production of EV batteries, changes in trade policies involving countries with significant lithium reserves and processing capabilities, such as China, could impact the EV industry.
The proposed tariffs run the risk of provoking retaliatory measures from other countries, including trade barriers. Such a response could escalate into a trade war, with negative consequences for all involved economies.
Sodium-ion batteries, especially if they become commercially viable and cost-effective, could reduce US dependence on China for lithium-ion battery materials and technology.
In April 2024, Osaka Metropolitan University shared research focused on the challenging task of developing a new process for mass producing solid sulfide electrolytes for sodium-ion batteries. This new method has the potential to enable the production of solid-state sodium batteries that could be scaled up for mass production.
Sodium-ion batteries offer other advantages such as improved safety, lower costs due to the abundance of sodium and potentially higher energy density compared to traditional lithium-ion batteries.
Investor takeaway
The cleantech sector is poised for change in 2025, driven by escalating energy demand and the push for sustainability. Advances in nuclear and geothermal energy offer promising solutions, while innovations in battery technology and cooling solutions further support the transition toward a cleaner future.
Overall, the cleantech industry's trajectory depends as much on policy decisions as it does on technological advancements and the global push for sustainability. Industry leaders’ ability to innovate and adapt will be crucial in shaping a cleaner and more energy-efficient future.
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Securities Disclosure: I, Meagen Seatter, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: Charbone Hydrogen and Westport Fuel Systems are clients of the Investing News Network. This article is not paid-for content.
Figure 1: Frontier freehold land in Waroona increases to 868ha
Source: Provaris Energy
