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

Solar energy will become the largest energy source in the next decade, surpassing coal, oil and natural gas, according to a new report from BloombergNEF. The tectonic shift will occur alongside the historic rise in energy use driven by AI and the electrification of entire industries.

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

BloombergNEF expects this shift to happen on economic grounds alone: ​​solar energy is too cheap to ignore. Pakistan, for example, has added 25 gigawatts of solar capacity in the past two years after natural gas prices soared in the wake of the Russian invasion of Ukraine. The transition could be faster if countries take bolder measures to reduce their carbon emissions.

The power delivery comes as investors view energy as one of the biggest growth opportunities in recent decades. Data centers have been at the heart of this mania, and BloombergNEF data reinforces the scale of the opportunity. The energy consulting firm expects data centers to provide an additional 1 terawatt of utility-scale solar, 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 predicts that these fossil fuels will provide 51% of data center additional generation by 2050. Simply put, technology companies and data center developers will have an outsized impact on which energy sources will still be viable by mid-century.

But these expectations are not strict. Other technologies are competing for a share of the data center market, including long-term energy storage, geothermal, and nuclear power. Big batteries have received a boost from Google, which included $1 billion worth of 100-hour batteries from Form Energy in a recent data center project. Both geothermal and nuclear power are showing promise following the blockbuster IPOs of Fervo Energy and X-energy this month.

However, competition from photovoltaics will be intense. Solar panels have exploded in popularity in recent years, driven by falling costs that show no sign of stopping. By 2035, prices are expected to fall another 30%, outpacing coal and natural gas. By 2050, solar panels are expected to generate more than twice the amount of electricity as natural gas.

It is possible to attribute the low costs of solar energy to two reasons: the first is China’s industrial policy, which favored technology, supported manufacturers and flooded the market. The other is mass industrialization, which has helped eliminate the costs of solar energy at a remarkable pace.

“In general, costs decrease with each doubling of installed capacity,” Kimmel said. “In the case of solar, things have moved even faster.”

The abundance of solar energy is starting to push grid-scale batteries down the same path. In Spain and Italy, independent solar farms are no longer profitable because the surplus of solar energy has depressed electricity prices during the day, Kimmel said. In response, developers have begun building so-called hybrid renewable energy plants, which connect solar panels to batteries to take advantage of higher evening prices.

Bloomberg said the current state of the battery market is similar to the state solar energy was in in 2020. Last year, 112 gigawatts of grid-scale batteries were installed around the world. By 2035, the company expects this number to nearly triple. Companies from Redwood Materials to Ford have launched energy storage companies to capitalize on the trend.

The missing piece in this report is the Iran War, which began when BloombergNEF was too far into the process to make any major changes. The team tested the effects of two scenarios on different countries’ dependence on energy imports.

Under an economic transition scenario, where decarbonization is driven largely by dollars and cents rather than regulation, every country would reduce its dependence on foreign energy, including oil powerhouse Saudi Arabia. Under the net zero scenario, which sees regulations driving deeper decarbonisation, virtually every country would be able to eliminate its dependence on energy imports.

“This transition, which is cost-effective in many ways, is actually a good thing for energy independence,” Kimmel said.