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

Solar power will overtake coal, oil and natural gas to become the largest source of electricity over the next decade, according to a new report from BloombergNEF. A seismic shift will occur with a historic increase in energy use and the electrification of entire industries through AI.

“Solar power is winning the race,” Matthias Kimmel, head of energy economics at BloombergNEF, told TechCrunch.

BloombergNEF expects this change to occur solely for economic reasons: solar power is too cheap to ignore. Pakistan, for example, has added 25 gigawatts of solar power over the past two years as natural gas prices soared following Russia’s invasion of Ukraine. The transition could be even faster if countries take more aggressive steps to curb carbon emissions.

The power handover comes as investors see energy as one of the biggest growth opportunities in decades. Data centers are at the heart of this, and BloombergNEF’s data reinforces the scale of that opportunity. The energy consultancy expects the data center to power an additional 1 terawatt of utility-scale solar power, 400 gigawatts of solar power, 370 gigawatts of natural gas and 110 gigawatts of coal.

But because gas and coal can run 24/7, BloombergNEF expects these fossil fuels to provide 51% of data center incremental power generation by 2050. Simply put, technology companies and data center developers will have tremendous influence over which energy sources will survive by mid-century.

However, these predictions are not perfect. Other technologies have also been vying for a piece of the data center market, including long-term energy storage, geothermal, and nuclear power. Large batteries are backed by Google, and recent data center projects include Form Energy’s $1 billion worth of 100-hour batteries. And both geothermal and nuclear power are showing promise following the blockbuster IPOs of Furbo Energy and X Energy this month.

However, competition with solar power generation is likely to be tough. Solar panels have become increasingly popular in recent years as costs have fallen, and there are no signs of stopping. By 2035, prices are expected to fall by another 30%, outpacing coal and natural gas. By 2050, solar panels are expected to generate more than twice as much electricity as natural gas.

There are two possible reasons for the falling cost of solar power. One is China’s industrial policy, which has favored this technology, subsidized manufacturers, and flooded the market. The other is mass production, which has allowed the costs of solar power to be squeezed out at an astonishing pace.

Generally, “costs go down every time you double your installed capacity,” says Kimmel. “With solar power, it’s going even faster than that.”

With the abundance of solar power, grid-scale batteries are starting to follow the same path. Kimmel said that in Spain and Italy, a surplus of solar power has lowered daytime electricity prices, making stand-alone solar farms no longer profitable. In response, developers have begun building so-called hybrid renewable power plants that combine solar panels and batteries to take advantage of higher nighttime prices.

BloombergNEF said the current state of the battery market is similar to that of solar power in 2020. Last year, 112 gigawatts of grid-scale batteries were installed around the world. The company expects that number to nearly triple by 2035. Companies from Redwood Materials to Ford have capitalized on this trend and launched energy storage businesses.

The missing piece from the report was the Iran war, which began when BloombergNEF was too advanced to make major changes. The research team tested the impact of two scenarios on different countries’ dependence on energy imports.

Under an economic transition scenario in which decarbonization is driven primarily by dollars and cents rather than regulations, countries, including oil giant Saudi Arabia, would reduce their dependence on foreign energy. Under a net-zero scenario, where regulation drives further decarbonization, any country could effectively eliminate its dependence on energy imports.

“This transition is cost-effective in many ways and actually has a positive impact on energy independence,” Kimmel said.