Solar to dominate energy by 2035, but AI data centers will keep fossil fuels in business

A recent report from BloombergNEF reveals that solar energy is poised to become the dominant power source within the next decade, overtaking traditional fuels like coal, oil, and natural gas. This significant transition is expected to coincide with a surge in energy consumption driven by advancements in artificial intelligence and the electrification of various industries. Matthias Kimmel, BloombergNEF's head of energy economics, emphasized that the economic advantages of solar energy are undeniable, stating, "Solar is winning the race." The report highlights that countries are rapidly increasing their solar capacity; for instance, Pakistan has added 25 gigawatts of solar power in just two years, largely in response to soaring natural gas prices following geopolitical tensions. Investors are increasingly viewing energy as a critical growth sector, with data centers playing a central role in this transformation. BloombergNEF anticipates that data centers will demand an additional 1 terawatt of utility-scale solar, alongside 400 gigawatts of solar, 370 gigawatts of natural gas, and 110 gigawatts of coal. Despite the rise of solar, the report projects that fossil fuels will still supply 51% of the additional energy required by data centers by 2050 due to their reliable 24/7 operation. The landscape of energy generation is becoming competitive, with emerging technologies like long-duration energy storage, geothermal, and nuclear energy seeking to capture market share. Notably, Google has invested in significant battery storage projects, including $1 billion for innovative 100-hour batteries from Form Energy. Meanwhile, both geothermal and nuclear sectors are gaining attention following the successful IPOs of companies like Fervo Energy and X-energy this month. As solar technology continues to advance, prices are anticipated to decline by another 30% by 2035, further enhancing its competitiveness against coal and natural gas. Projections suggest that by 2050, solar panels could generate more than double the amount of electricity produced by natural gas. This price reduction is largely attributed to China's supportive industrial policies and the benefits of mass manufacturing, which have dramatically lowered costs. Kimmel noted, "Costs fall with every doubling of installed capacity," and the rate of cost reduction for solar has been even more accelerated. The increasing prevalence of solar energy is also affecting the battery market, with standalone solar farms struggling to remain profitable due to reduced daytime electricity prices. To adapt, developers are now creating hybrid renewable power plants that combine solar and battery storage to maximize profits during peak evening energy demands. In 2020, the state of the battery market was similar to where solar energy was back then. Last year alone saw the installation of 112 gigawatts of grid-scale batteries globally, with expectations to nearly triple that figure by 2035. Companies including Redwood Materials and Ford are tapping into the energy storage market as this trend continues to grow. While the report does not delve into the implications of the ongoing Iran War, BloombergNEF did model various scenarios regarding countries' dependencies on energy imports. The findings suggest that a cost-driven transition toward decarbonization could enhance energy independence across nations, including those traditionally reliant on oil, such as Saudi Arabia. Kimmel concluded, "The transition, which is cost-efficient in many respects, is actually beneficial for energy independence."