AI Power Demand Might Actually Turn Out to Be Good for Climate

(Bloomberg) -- Big energy companies are making the case that skyrocketing electricity demand from data centers — and the need to build more power sources to meet it — will end up being good for the climate.

Several company executives have plugged the counterintuitive claim over the past month: Cam Hosie, senior vice president of new energy at SLB, the world’s biggest oilfield service provider, called the rapid increase in electricity demand the “greatest blessing” the energy transition could hope for.

The sentiment was echoed by Scott Strazik, chief executive officer of GE Vernova Inc. the world’s biggest manufacturer and supplier of technology for natural gas-fired power plants. Strazik said the phenomenon would be “net-decarbonizing.”

But when companies that profit off fossil fuels tout the virtues of the transition to clean energy, skepticism typically follows. This time is no exception, with swift pushback coming from climate advocates.

“We see it as a big threat to decarbonization,” said Laurie Williams, director of the Beyond Coal Campaign at the Sierra Club.

At the heart of the debate is the massive new demand for electricity in the US that’s expected to accelerate in the coming years. Demand growth is expected to jump by as much as 15% in some regions over the next five years, with a similar unexpected consumption boom not seen since World War II, according to energy consultancy Wood Mackenzie. The increase is being driven by the electrification of the economy along with new factories and the rise of power-hungry data centers that support artificial intelligence.

Rising power demand has already delayed some coal-plant retirements and sparked a huge plan for the buildout of natural gas-fired plants, which usually have at least a 40-year lifespan.

“If they just say they need power as quickly as possible, it’s going to lead to further entrenchment of a fossil-fuel grid,” Williams said.

But energy company executives argue that demand gains will actually provide both the pressure and financial incentive necessary to reform the US electric grid.

“It takes it away from being a zero-sum game to being a growth story,” SLB's Hosie said at a BloombergNEF event in New York in late September during Climate Week NYC. “Growth equals investment.”

Indeed, while BloombergNEF data show that natural gas remains the biggest source of electricity generation in the US, much more new solar and wind power are added each year than gas.

Rising power demand will create the opportunity to restructure our entire energy system, said GE Vernova's Strazik. His company is spending money to develop small modular nuclear reactors, carbon capture and hydrogen-burning gas turbines that would be hard to justify without demand growth. "It gives us an opportunity at scale to accelerate new technology," he said in an interview Wednesday. "In a flat market you'd have a hard time making those investments."

Utility executives have made the same point. “We can have load growth that enables the clean-energy transition,” PG&E Corp. Chief Executive Officer Patti Poppe said in an interview at the RE+ Conference in Anaheim in September. She added that if the California utility spent up to $1.5 billion to meet an additional gigawatt of data center power demand, the revenue from that new load would cut all customer bills between 1%-2% and free up funds to make the grid more reliable.

And at the same time, technology companies have climate goals to reach net-zero carbon emissions and prefer clean energy for their data centers. Amazon.com Inc., Alphabet Inc.’s Google and Microsoft Corp. have each announced nuclear deals recently that aim to power their operations with carbon-free generation.Some of those same companies gave clean energy a huge boost more than a decade ago when tech firms signed the first power-purchase agreements with wind and solar developers. "They helped scale a global industry that has transformed the energy system in every country," said Mark Dyson of the carbon-free electricity program at climate and energy nonprofit RMI.Rapid development of clean energy and transmission lines have long been stymied by permitting and political roadblocks, said John Hensley, head of markets and policy analysis at American Clean Power. Meeting the challenge of rising power demand could unblock those logjams, he said, citing a proposed bipartisan permitting reform bill. "There's nothing like a good crisis to solve a problem."

Michael Webber, a professor of energy at the University of Texas at Austin, also noted that electrification of vehicles, for example, is still net positive for the environment, even if a power plant is run on fossil fuels. That’s because a big power plant operates more efficiently than a gas engine. He also said that while rising power demand will extend the life of dirty coal plants and natural-gas plants in the short-term, over the long run it’ll make it easier to shut down that carbon-emitting generation.

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