Under attack from US President Donald Trump, the cause of greening the US’ power grid now relies to a large degree on some of his most recent converts in Silicon Valley. This has nothing to do with politics; rather wealth, scale and urgent need are working together to advance renewable energy and nuclear power, albeit in different ways.
The Trump tax bill working its way through the US Congress is a huge blow to renewables. Republicans in the US Senate were expected to dilute the zealous anti-greenery in the US House of Representative’s version of the bill, but the latest language out of the Senate Finance Committee is only a little less harsh.
Tax credits supporting wind and solar projects will phase down to zero by the end of 2027. That might pull forward some projects, but it will ultimately bump renewable energy costs up considerably.
For example, removing the investment tax credit raises a typical solar project’s electricity price by about 40 percent, according to Lazard Inc.
Together with regulatory efforts to boost the fortunes of coal and gas-fired electricity, this would ultimately suppress appetite for new renewables projects.
By how much depends on whether pricing is the overriding factor at play. When it comes to Big Tech, it is not. What is more, Big Tech is pretty much the ball game for new renewables projects.
Just four so-called “hyperscalers” — Alphabet Inc, Amazon.com Inc, Meta Platforms Inc and Microsoft Corp — dominate the corporate power purchase agreements (PPA) signed with wind and solar projects in the past half decade, putting in place multi-year contracts to buy their output and thereby providing them with the certainty required to secure financing.
Overall, PPAs for 98 gigawatts of US wind and solar capacity have been signed in that time, according to Bloomberg NEF, a figure equivalent to 74 percent of the new capacity that began operating.
The growing power needs of data centers developing artificial intelligence (AI) tools is well established, even if the ultimate level of those needs is debatable. For the hyperscalers, renewable energy has two attractions: The projects are relatively quick to build and they help with decarbonization pledges. Data centers, nearly always on, clearly are not running anything like 100 percent on intermittent renewable energy, even with batteries in the mix. So, natural gas plants, old and new, also benefit from the AI race, which, in turn, supports more renewable PPAs being signed to offset the emissions from fossil-fuel sources.
Such contracts are also relatively cheap after years of underlying price declines for clean technologies and, of course, federal tax credits.
Corporate PPAs signed in the second half of last year undercut average electricity futures by at least 10 percent, according to estimates from Bloomberg NEF.
Removal of the credits, alongside trade frictions, would upend that, meaning gas will likely account for a larger share of new electricity generation through the second half of this decade than it might have otherwise, although prices and wait times for new gas turbines have also increased significantly.
Yet price might not be the decisive factor for the decisive customer segment.
The four big hyperscalers spent an average 1.6 percent of their revenue on electricity bills last year, analysts at UBS Group AG estimated.
Losing the tax credits would bump that up by an average of just 19 basis points, according to the estimates.
Provided Big Tech does not abandon its ambitions in AI or decarbonization altogether, that rounding error offers some potential insurance for renewables developers.
Of course, a sector built on subsidies will still take a hit if those subsidies are rapidly withdrawn. We saw, analogously, how a jump in interest rates chilled offshore wind power in recent years. Demand for new projects will suffer and, as with any fragmented industry faced with an oligopsony and suddenly souring economics, the field of US renewable energy is poised for potentially brutal consolidation.
The top 10 project developers accounted for only 37 percent of US wind and solar capacity that secured financing or began construction last year, according to data compiled by Bloomberg NEF.
A stronger, more concentrated sector should emerge somewhere down the line.
The other, longer-term bet for a decarbonized grid concerns nuclear power. This gets a relative pass from Republicans, with the latest Senate language improving on the House tax bill by preserving production tax credits for nuclear plants, provided they are not using fuel from the likes of Russia.
Trump has also signaled support through executive orders and is reportedly planning to reorient the US Department of Energy’s Loan Programs Office toward financing new reactor technologies.
Even so, Big Tech’s role is crucial, perhaps decisive. Hyperscalers clearly value the large quantities of dispatchable, carbon-free power that reactors provide. Thus far, though, this has meant contracting with existing nuclear plants or reviving the relative handful of recently closed ones. There is a good reason for this: Building new reactors is costly, risky and often takes a decade or more. The last reactors built in the US were a case study in busted budgets and schedules, leaving utilities reluctant to plunge into a new round.
Federal support helps defray some of the costs and risks involved, but what is really needed are customers with a thirst for emissions-free power that is matched only by the depth of their pockets. Big Tech is the obvious candidate. PPAs signed with nuclear plants at above-market rates by the likes of Amazon and Microsoft demonstrate a willingness to pay up for decarbonized power, which is also an encouraging sign for renewables facing the loss of tax credits.
In addition, several hyperscalers have taken preliminary steps to encourage development of new technologies, such as small modular reactors, but these remain far from committing to the sort of long-term PPA that a nuclear start-up could take to the bank. That would be the difference between talking about new nuclear plants and actually getting them built.
As with renewable power’s resilience, therefore, the prospects for a nuclear revival rest largely with the tech bros. Not the most comforting message in these times, perhaps, but far more hopeful than anything likely to emerge from Capitol Hill.
Liam Denning is a Bloomberg Opinion columnist covering energy. A former banker, he edited the Wall Street Journal’s “Heard on the Street” column and wrote the Financial Times’ “Lex” column. This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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