What will power the grid in 2035? The race is wide open

As artificial intelligence continues to surge in its energy consumption, tech companies are racing to discover alternative power sources. This quest has ignited intense competition and significant investments in both fusion and fission startups. While natural gas has traditionally been viewed as a reliable solution for consistent baseload power due to its affordability and accessibility, recent geopolitical tensions, particularly the recent conflicts in the Middle East, have raised concerns about its supply chain stability. Notably, drone strikes have severely impacted natural gas infrastructure in Qatar, one of the world's primary exporters. Compounding these worries, the rising demand for gas has created extensive waitlists for gas turbines, with current orders likely not being fulfilled until the early 2030s. This situation not only jeopardizes tech companies but also poses a risk to the natural gas sector itself, which currently derives 40% of its usage for electricity generation in the United States. By the time turbine availability improves, the industry may face a new wave of competitors. Startups focused on small modular nuclear reactors (SMRs) and fusion power are gearing up to connect their initial commercial power plants to the grid within the next five to seven years, aligning with the timeline for acquiring components for new natural gas plants. SMR companies, in particular, are well-positioned to potentially replace traditional natural gas facilities. Their technology often builds upon existing fission reactor designs, which have been validated over decades. Several SMR firms hope to have operational reactors before the decade concludes. For instance, Kairos Power, which has Google as a prospective client, is advancing with its Hermes 2 demonstration reactor scheduled for 2024. Meanwhile, Oklo, which merged with a special purpose acquisition company led by Sam Altman, aims for its first commercial operations in 2028, as per its annual report. Other players like X-energy, backed by Amazon, and TerraPower, founded by Bill Gates with a partnership with Meta, are also targeting the early 2030s for their commercial launches. To effectively replace natural gas, SMRs must scale up rapidly to achieve the economies necessary for their business models. This ambitious goal presents challenges, yet tech companies are affirming their faith by investing in these startups or securing agreements for substantial power generation. Fusion power is another avenue gaining traction among technology firms. Although less established compared to fission, nuclear fusion holds the promise of generating vast amounts of power with minimal fuel requirements, primarily utilizing seawater. Fusion startups are also targeting the early 2030s to roll out their first reactors. Commonwealth Fusion Systems, a leading contender, is set to launch its demonstration reactor next year, with expectations to generate power from its 400-megawatt Arc reactor in Virginia in the early 2030s. Another emerging player, Inertia Enterprises, plans to start building a grid-scale power plant by 2030, leveraging designs from the National Ignition Facility, which successfully demonstrated that controlled fusion could produce more energy than it consumes. Helion, a startup supported by Sam Altman, aims to construct its commercial power plant, Orion, by 2028, intending to provide electricity to Microsoft and negotiate power deals with OpenAI. Should Helion achieve its ambitious goals, including building 800 reactors by the decade's end, it could significantly disrupt the energy market. Last year, the U.S. added a total of 63 gigawatts of new generating capacity across all power sources. If Helion can generate around 10 gigawatts annually, it would surpass the total output of the entire natural gas industry from the previous year. However, the challenge of affordability looms over all companies, including gas turbine manufacturers. SMR startups are banking on mass production to lower costs, though this theory remains untested. Currently, nuclear power stands as one of the priciest new capacity options, averaging around $170 per megawatt-hour, according to Lazard. Fusion power faces similar hurdles, with forecasts suggesting an initial cost of approximately $150 per megawatt-hour. In contrast, new natural gas plants are currently priced around $107 per megawatt-hour, although costs have been on the rise, potentially creating competition with upcoming fission and fusion reactors. Renewable energy paired with battery storage might pose the most significant challenge to these emerging technologies. The steep decline in costs for wind and solar energy over the past decade has made them increasingly competitive. While wind power seems to have stabilized, solar prices continue to decrease. Battery prices are also trending downward, with grids installing significant capacities—58 gigawatt-hours last year alone. Even without subsidies, the combination of solar and batteries can range from $50 to $130 per megawatt-hour, overlapping with the costs of fusion, fission, and natural gas. New battery technologies, designed specifically for grid applications, may further reduce these costs. For example, Form Energy has recently partnered with Google to supply power from a 30-gigawatt-hour iron-air battery, while XL Batteries utilizes repurposed oil tanks for its innovative organic fluid storage solution. By avoiding critical minerals like lithium, cobalt, or nickel, these new batteries promise to drive long-duration energy storage costs down to levels that could overshadow traditional energy sources.