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

Solar will become the largest source of energy in the next decade, surpassing coal, oil and natural gas, according to a new report from BloombergNEF. A tectonic shift will occur along with a historic rise in AI-driven energy consumption and electrification of all industries.

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

BloombergNEF expects the change to happen for purely economic reasons — solar is too cheap to ignore. Pakistan, for example, added 25 gigawatts of solar power in the past two years after natural gas prices rose following Russia’s invasion of Ukraine. The transition could be even faster if countries take aggressive steps to curb their carbon emissions.

The energy supply comes as investors view energy as one of the biggest growth opportunities in recent decades. Data centers have been in the midst of a frenzy, and BloombergNEF data reinforces the scale of the opportunity. The energy company expects the data centers to drive an additional 1 terawatt of solar scale, 400 gigawatts of solar, 370 gigawatts of natural gas, and 110 gigawatts of coal.

But because of gas and coal’s ability to operate 24/7, BloombergNEF expects those fossil fuels to provide 51% of the growing productivity of data centers by 2050. Simply put, technology companies and data center developers will have a big impact on where energy sources stay in mid-century.

Those predictions are not ironclad, however. Other technologies are vying for a piece of the data center market, including long-term energy storage, geothermal, and nuclear. Big batteries have gotten a boost from Google, including $1 billion worth of 100-hour batteries from Form Energy for a recent data center project. And both the promise of geothermal and nuclear power follows the blockbuster IPOs of both Fervo Energy and X-energy this month.

Competition from photovoltaics will be tough, however. Solar panels have become more widespread in recent years, fueled by falling costs that show no signs of stopping. By 2035, prices are expected to drop another 30 percent, with coal and natural gas competing. By 2050, solar panels are expected to produce twice as much electricity as natural gas.

The decline in solar costs can be attributed to two causes: China’s alternative industrial policy, which favors technology, subsidizing manufacturers and market saturation. One is mass production, which has helped drive down the cost of solar at a remarkable pace.

In general, “costs fall with every doubling of installed capacity,” Kimmel said. “In the case of solar, it’s gone much faster than that.”

Solar mass is starting to push grid-scale batteries down in the same way. In Spain and Italy, private solar farms have become unprofitable because the surplus of solar power has reduced daytime electricity prices, Kimmel said. In response, developers have begun building so-called hybrid renewable energy plants, which pair solar panels and batteries to take advantage of higher evening rates.

The current state of the battery market is similar to where solar was in 2020, says BloombergNEF. Last year, 112 gigawatts of grid-scale batteries were installed worldwide. By 2035, the company expects that number to nearly triple. Companies from Redwood Materials to Ford have launched energy storage businesses to capitalize on the trend.

The missing piece in this report was the Iran War, which began when BloombergNEF was far from the process of making any major changes. The team examined the effects of two scenarios on the dependence of various countries on energy imports.

Under an economic revolution, where emissions are driven more by dollars and cents than regulations, each country can reduce its reliance on foreign power, including oil giant Saudi Arabia. Under a net-zero scenario, which sees regulations driving deep carbon emissions, each country would be able to eliminate dependence on foreign energy imports.

“The revolution, in many ways it’s good value, is actually good for energy independence,” Kimmel said.