The AI Boom Is Now an Energy Boom

The AI race has ignited a parallel boom in energy that is already revamping U.S. power generation and changing natural gas infrastructure, utility systems and regulation in ways that could last for decades.

Natural gas producers are expanding pipelines faster than they have in years, utilities have secured regulatory approval for billions of dollars in spending and power-equipment manufacturers’ backlogs are allowing them to scale up factories.

The industries have become powerful supporters of the AI buildout, giving the U.S. tech industry political and economic support for its frantic timeline to win the AI race. 

One point of near-unanimous agreement is that the U.S. power system, from utilities to equipment manufacturers to natural gas producers, requires far more investment in decades-old infrastructure to keep up with what’s coming. Asking a binary question—will the AI bubble burst or not?—ignores what else the boom has set in motion and who has an interest in keeping it going. 

There’s going to be $6.7 trillion spent on AI and cloud-computing from 2025 through 2030, McKinsey estimates. Spending on IT equipment (chips, servers and storage) accounts for “just” $4.4 trillion of that total. Construction labor, materials and land for data centers add $1 trillion. Electrical and mechanical equipment and fiber networks add nearly another $1 trillion.

McKinsey’s estimate doesn’t include the full $1.1 trillion that regulated utilities have now said they expect to spend—and charge ratepayers for—to support electricity demand growth over the same period, thanks primarily to AI. 

The estimate also excludes the $50 billion in planned new pipelines and tens of billions of dollars in private transmission projects that AI demand is helping to underwrite. It may also undercount billions of dollars in additional spending on on-site power generation that tech giants are building themselves. Manufacturers like Eaton, GE Vernova, Schneider Electric and Vertiv have also collectively announced billions of dollars in factory expansions to build power and cooling equipment.

Natural gas industry CEOs tell me they see the AI race as a once-in-a-generation opportunity to get capital and political backing to build infrastructure in markets where climate activists and not-in-my-backyard opponents had led them to cancel projects or curb production. Tech giants have softened their stance on using fossil fuels and policymakers have begun greenlighting interstate pipeline expansions again after energy companies framed the investments as a national imperative to dominate the AI race. Gas that was once stranded without an outlet—because at least 90% of it travels by pipeline—will flow into these new markets for decades to come. 

Toby Rice, CEO of EQT Corp., the largest U.S. natural gas producer, announced a deal in July to supply gas to a massive, and still prospective, off-grid AI data center project on the site of a recently imploded coal plant in Homer City, Pennsylvania. It would fuel what would be the country’s largest gas plant, which could run as much as 4.4 gigawatts of AI computing power in the most congested power corridor in the country.

EQT has also quickly filled available capacity on its Mountain Valley Pipeline through Appalachia, which was opened in June 2024, thanks to deals with utilities such as Duke Energy and Southern Co. The two companies said data centers account for nearly all of their projected new power load. Although the 303-mile pipeline took a decade to push through, EQT last year won federal approval to extend it into North Carolina. Duke has already bought space on it.

Meanwhile, Chad Zamarin, CEO of gas pipeline operator Williams Cos., has built a $5.1B portfolio of power generation and transport projects in the company’s newly named Power Innovation portfolio which will supply power directly to data centers. Projects include a gas plant for Meta’s Socrates project in Ohio and sites in Virginia’s Data Center Alley. Williams has also invoked the AI race to urge Congress to pass permitting reform. The latest attempt, the Standardizing Permitting and Expediting Economic Development (SPEED) Act, just passed the House Dec. 18 and is headed to debate in the Senate.

Then there are investor-owned utilities. Demand growth has been essentially zero for 20 years, limiting what they could spend on new facilities and upgrades. Not anymore. The industry has just unveiled plans for $1.1 trillion in capital expenditures in the next five years, double their rate of spending the past 10 years, according to the trade group Edison Electric Institute.

Once utilities get regulatory approval for such spending, they officially win the right to charge a guaranteed rate of return to erect plants, poles and wires for the life of 20- to 30-year projects. Come what may with AI, monopoly utilities will still be “making more by spending more.” (Nice business model if you can get it.) This is not to say they won’t face wrath if they’ve charged everyday people for wasteful projects. But it turns out, we’re so short of modern power infrastructure that we’ll likely still need it when the froth boils off.

Clean energy producers are also lunging at opportunity. They’re mostly happy to build solar and battery farms with gas backup to sate AI’s power habits, because they, too, need to scale.

The struggling U.S. battery industry is also getting a boost. The publicly traded battery company Eos Energy Enterprises was able to borrow $600 million and close a $458 million stock offering in November. Its batteries can be used as backup power for data centers and the electricity grid. CEO Joe Mastrangelo said the financing allowed Eos “to scale with speed and certainty at a time when the world is entering an energy supercycle.”

Metal and commodity markets that have been in the doldrums for years are suddenly in high demand. Plans by Microsoft, Meta and Google to revive or extend licenses for old nuclear reactors means companies are scrambling for sources of U.S. produced uranium. 

What happens if the AI buildout falters? Energy has always been a boom-and-bust industry, and its executives know a few things about surviving downturns. Big energy company executives tell me they’re avoiding counterparties with “x” or “Open” in their names or with credit that’s not pristine as they negotiate capital-intensive projects like carbon capture for data center gas power.  This could give the tech giants an important advantage if growth slows. 

This is not to say the booms across industries aren’t intertwined and that real estate and construction companies, power providers and equipment makers won’t suffer if overleveraged AI players default on projects. But data center capacity is still scarce, with vacancy at an all-time low of 1.6%, says CBRE. 

JP Morgan senior analyst Stephen Tusa, who follows data center cooling and power management leader Vertiv, points out that the company has grown revenues from $5 billion to $10 billion since 2021 and still has 1.3 times more orders in process than it booked as revenue this year. “We’re calling it a galactic cycle,” Tusa said. “Because I’ve never seen anything in my 27-year career that looks anything like that.”

In related “supercycle” news:

• Texas’s grid operator, the Electric Reliability Council of Texas, or ERCOT, in December voted unanimously to approve the second, $9.4 billion phase of a buildout expected to cost up to $33 billion for extra-high-voltage (765 kV) transmission. Even if the data center build falls short, its VP of system planning says its modeling shows the spending is justified by rapid electrification of energy production and industrial expansion.

• Robust demand from AI data centers helped Austin-based solar and storage company T1 Energy raise funds to repay debt from a Chinese partner and move closer to building an end-to-end American-made solar supply chain in a market long dominated by China. (T1 used to be based in Europe and known as FREYR Battery; a new U.S. management team took over and rebranded.) 

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