President Trump has promised that the U.S. is open for business — and cheap abundant energy is a cornerstone of that promise. On his first day in office, Trump made good on his “Drill, Baby, Drill” energy policy by signing an executive order to “expedite” permitting and leasing for energy projects in Alaska. (RELATED: Getting Back to an ‘America First’ Energy Policy)
Silicon Valley’s recent shift towards supporting Trump stems in part from their realization that their technology, especially artificial intelligence, needs an incredible amount of new energy generation.
But what is the administration’s agenda when it comes to the electrical grid?
Future Electrical Needs
By some projections, data centers will add roughly 500 terawatt hours of electricity demand by the end of 2026. For perspective, this is equivalent to powering every home in the United States for an hour. It’s also roughly 10 times the energy California uses. Or to put it another way, it represents about a 25 percent increase over U. S. energy production in 2022. No wonder Trump declared our current energy situation an “emergency.”
In the last year, several large tech companies began talking with utilities and energy companies about new energy production devoted solely to their projects. Microsoft made a deal with Constellation Energy to restart one of Three Mile Island’s nuclear generators. Amazon and Google have also announced deals to build new nuclear reactors. Trump himself told world leaders that he would fast-track energy projects “co-located” with data center and AI development.
While this may look like a win for free enterprise, we should be wary of the political economy dynamics involved.
Utilities should deliver as much power as people on the electric grid want when they want it — just as grocery stores deliver milk, eggs, and other products when people want them. This is tricky, though, because energy can’t be stored or inventoried easily, yet its demand fluctuates greatly throughout the day and throughout the year. People arriving home from work, peak manufacturing hours, and lighting at night all create higher energy demand. Heat waves lead to massive surges in demand as millions of people run their air conditioning more often and for longer than during the rest of the year.
The Trouble with the Current System
Utility and power companies do not operate in an open competitive market. In fact, utilities are highly regulated from the prices they can charge to who can operate to whether they can borrow money for capital projects. Under these circumstances, profit and loss don’t necessarily provide adequate discipline. Instead, political clout and the ability to persuade regulators and state legislators matter most. Large tech companies have enormous resources to navigate this world to get what they want: new dispatchable power generation, upgraded reliable transmission lines, and favorable rates.
Ordinary ratepayers, however, are not so fortunate. Depending on the kinds of deals that tech companies make with energy utilities, ratepayers may face increased electricity rates as utilities attempt to recoup significant capital expenditures. Ratepayers already often put up with antiquated infrastructure, mediocre service, and, in some places, blackouts.
The renewable energy craze of the last two decades bears much of the blame for this. Utilities have been pressured, and often legally required, to increase their renewable energy portfolio. Doing so has meant high capital expenditures on wind and solar generation, building expensive new transmission lines for renewable sources, while still having to manage dispatchable power when the wind isn’t blowing and the sun isn’t shining.
Renewable energy mandates for utilities have been an unmitigated disaster for ratepayers, in other words, everyone. The mandates have driven costs up dramatically, reduced reliability, and done little towards reducing emissions. Intermittent and variable power generation by wind and solar severely limit their effectiveness. Dispatchable power, by contrast, has been the mainstay of utility companies for a century. (RELATED: A Wrong Turn on the Road to ‘Green’ Energy)
Tech companies have been indirectly driving up utilities’ cost structure as they purchase renewable energy credits requiring more renewable energy generation, to polish their green bona fides while running their data centers entirely on traditional dispatchable power generated almost entirely by fossil fuels.
Legal mandates are generally bad since market forces lead to faster and better adaptation to meet consumers’ desires. For example, renewable energy mandates that drive up costs with no discernable benefits should be abandoned. But for highly regulated industries like utilities that provide significant services, certain mandates may make sense. Mandates around emissions standards should be revisited to provide more flexibility to power companies to comply in lower-cost ways. Legal mandates regarding reliable electricity provision, however, should be championed. (RELATED: America Needs a Rational Energy Policy)
Preventing blackouts at the top of utilities’ priority lists. Similarly, utilities should prioritize efficiency and keeping electricity provision affordable. Investments that detract from reliability, like investing in big wind and solar projects, should be shunned unless and until they can be shown to increase reliability and/or reduce electricity rates for consumers. Because this market is highly regulated, however, state officials should provide clear directives and accountability to utility companies under their jurisdiction.
Most utilities have done a poor job of upgrading their transmission lines and expanding their delivery capacity. Allowing Google, Microsoft, Meta, and other massive tech companies to create energy side-deals won’t fix these problems. In fact, they may worsen them as both tech companies and utilities have incentives to offload as much of their costs as possible onto ordinary ratepayers.
The Trump administration’s pro-energy policy must include widespread improvements for ordinary people’s access to energy. While prices at the gas pump are important, the price and reliability of electricity provision maybe even more so. Electricity markets and utilities need significant regulatory reform. We should want the large tech companies to throw their weight on the side of those reforms – but that will only happen if they have to use the grid under similar rules and conditions as everybody else.
READ MORE from Paul Mueller:
A Better Alternative To the Davos Elites
The Children of Elites Are in Trouble
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Dr. Paul Mueller is a senior research fellow at the American Institute for Economic Research. He received his Ph.D. in economics from George Mason University. Previously, Mueller taught at The King’s College in New York City. You can follow him on X (@DrPaulMueller)
