Latest / Look Forward / The AI-Energy Paradox: Balancing Innovation with Sustainability | Look Forward Ep. 36

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The AI-Energy Paradox: Balancing Innovation with Sustainability | Look Forward Ep. 36 · Look Forward

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  Hello and welcome to the Look Forward podcast powered by the S&P Global
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  Institute, the platform for enterprise thought leadership across S&P Global.
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  I'm Aries Poon.
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  I'm leading the analysis team for Asia Pacific and Latin America in
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  the Market Intelligence division, and I will be your host today.
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  Markets are moving faster, risks are shifting, and
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  decision makers need foresight.
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  In this podcast, we bring you expert perspectives from across S&P Global on
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  the macroeconomic, market, energy, and technology forces shaping what comes
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  next and helping you navigate uncertainty and look forward with confidence.
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  Today, we are looking at a critical question: Can the rapid rise of AI
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  coexist with sustainability, or is something else driving the energy shift?
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  We'll explore how hyperscalers are powering AI growth, why renewables
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  remain central, and what this means for energy security and geopolitics.
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  And welcome to our guest, Tonglin Henois, our data center
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  expert from the Energy division.
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  Tonglin, welcome to the show.
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  Hi, Aries.
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  Thanks.
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  Thank you for having me.
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  Okay.
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  To start us off, how has the search in AI demand reshaped
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  a broader energy narrative?
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  Sure.
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  Well, first, uh, let me maybe preface my answer by saying that, uh, as
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  analysts, uh, I suppose we try to avoid making overly dramatic statements.
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  But really when it comes to the rise of AI and electricity demand from AI data
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  centers, it's, it's, it's been a veritable paradigm shift for, for the power sector.
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  Um, in the US, electricity demand stayed essentially flat in the
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  last twenty years, uh, leading up to the launch of ChatGPT in 2022.
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  Uh, and by the way, that in and of itself is rather remarkable when you think
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  about it because in that interval, the US population grew nearly eighteen percent,
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  and the US GDP, uh, more than doubled.
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  So really this speaks to our efficiency gains as a society during that period.
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  But now we've entered a new era, and US electricity consumption is, is anticipated
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  to, to grow at a three percent compound annual growth rate in the next five years.
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  Uh, for perspective, uh, based on the most recent available, um, sustainability
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  report combined, uh, Google, Meta, and Microsoft saw their annual energy
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  consumption jump, uh, a hundred and forty percent between 2020 and 2024.
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  Uh, now it's probably fair to say that the impact of AI compute
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  had yet to be reflected in 2024.
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  In other words, we have not seen anything yet, if you can believe it.
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  And just for further context on this historical moment, uh, I will just
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  say that, uh, this whole AI sea change really kicked into higher gear as
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  the power sector was experiencing a major push to decarbonize the grid.
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  So really when you think about it, we are living a revolution within a revolution.
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  So even with policy changes and reduced incentives, why are renewables
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  still seeing strong momentum?
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  Yeah.
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  So for context, it's true that the one big, uh, beautiful bill of July
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  of 2025 accelerated the phaseout of tax credits for renewables.
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  And so when they expire, and indeed if they do expire, uh, that will be a new
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  economic context for renewable developers.
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  I'll, I'll just note that renewable tax credits have expired and been reinstated
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  several times in the last thirty years Uh, at any rate, in the meantime, corporate
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  renewable procurement remains very strong.
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  Um, based on our tracking of power purchase agreements, uh, the top four
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  US hyperscalers had contracted about 135 gigawatts of clean energy around
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  the world as of, uh, February of this year, and that included about 112
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  gigawatts of solar and wind capacity.
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  Historically, hyperscalers are, are those very large, uh, global
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  cloud service providers that operate massive data centers.
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  Uh, and the top four include Amazon, Google, Meta, and Microsoft.
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  And these com-companies continue to contract a large amount of,
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  uh, large amounts of clean energy capa-capacity for several reasons.
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  First, they remain, uh, publicly committed to their sustainability targets.
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  Uh, second, renewables have reached maturity, and they are
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  increasingly cost competitive.
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  And, uh, last but not least, in the context of the global race to achieve
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  AI dominance, speed to power is a major competitive advantage for solar and wind.
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  As we zoom in to the drivers of energy choices, is it really about
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  sustainability, or are there other priorities driving those choices?
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  Yeah.
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  So as we just saw, uh, speed to power is an important factor.
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  Uh, and frankly, AI, um, AI data centers are going after all the energy
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  they can get Also when, uh, what we are seeing is that in the context of
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  geopolitical tensions, carbon-free technologies, including renewable energy,
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  provide a, a degree of autonomy, uh, and price stability on top of divers-
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  diversifying the, the energy mix.
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  And in the end, regardless of motivation, whether you are pursuing
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  renewable for energy independence or for sustainability reasons, uh, well, the
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  outcome is the same for sustainability.
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  That is to say, the energy mix gets decarbonized.
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  And, you know, um, there are historical precedents.
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  Uh, well, at least I can think of one.
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  I'm originally from France.
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  Uh, in the 1970s, France famously embarked on a very ambitious
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  plan to produce most of its electricity from nuclear generation.
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  Uh, not for any particular, uh, ideological purposes at the time.
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  Uh, they were simply focusing on decoupling electricity
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  production from oil imports after the, uh, OPEC embargo of 1973.
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  But when all is said and done, today they have one of the most, uh, decarbonized
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  generation fleets in the world.
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  And, uh, you talk about climate goals, and there has been debate
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  about whether AI expansion is compatible with climate goals or not.
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  So what does the evidence, uh, suggest so far?
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  Yes.
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  So in, in principle, they are compatible But we believe that if major s- uh,
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  AI stakeholders were forced to choose, uh, well, achieving AI dominance would
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  probably take precedence, uh, because of the broader geopolitical ramifications,
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  uh, in terms of, um, economic competitiveness, military capabilities,
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  and more broadly, global influence.
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  And in fact, uh, some major big tech companies have been tempering expectations
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  around their sustainability targets.
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  Uh, for example, um, in its twenty twenty-five sustainability report,
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  Google described its net zero goal by twenty thirty as a climate moonshot.
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  Uh, it also said that AI-related, um, energy demand was making its
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  future emissions trajectory more difficult to pro- to, to, to forecast.
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  Um, Microsoft, in its latest, uh, sustainability report, disclosed that,
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  uh, total emissions had increased about twenty-three percent, uh,
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  since twenty twenty due to several factors, including AI expansion.
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  Uh, and I suppose we can assume that the other hyperscalers are facing
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  the same, uh, types of challenges.
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  Aside from the hyperscalers also, uh, data from the twenty twenty-five S&P Global
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  Corporate Sustainability Assessment, uh, shows that thirty-five percent of assessed
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  companies with data center operations do not have, uh, a net zero commitment.
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  Let's take a look at the energy strategies, uh, evolving
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  beyond renewables for now.
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  Uh, so we're seeing diversification beyond solar and wind.
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  Um, so what other energy sources are also entering the mix?
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  Yes.
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  So all sources of energy, uh, and preferably clean sources of energy
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  are on the table, including, uh, geothermal and nuclear, for instance.
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  Uh, in fact, the, the rapid rise of AI compute has led, uh, to
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  a resurgence of nuclear energy.
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  I'm sure you've, you've heard about that.
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  Uh, hyperscalers like nuclear, um, for its high energy density, for its reliability,
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  and because it is carbon-free.
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  Uh, in other words, the, the technology allows the, the hyperscalers to
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  reconcile their massive energy needs with their decarbonization objectives.
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  And unlike solar and wind energy, nuclear power is available around the clock.
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  It's not dependent on weather or, um, sunshine Also, when a hyperscaler
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  contracts energy with a nuclear power plant, it can secure large blocks
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  of, of capacity in one fell swoop.
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  Uh, we are talking about the type of volume that would require multiple deals
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  with ren- uh, renewable energy providers.
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  As of, uh, February of this year, the four hyperscalers
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  we've talked about had about…
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  uh, had contracted about 17 gigawatts of existing and, uh, new nuclear
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  capacity, uh, with, with most of the new capacity to be deployed by
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  small modular reactor companies, uh, such as, uh, X-energy, which went
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  public, um, about six weeks ago.
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  Uh, TerraPower, which was founded by, uh, Bill Gates, and Kairos Power.
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  Um, and, uh, most of that new nuclear energy capacity is expected
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  to come online in the early 2030s.
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  Um, and when you think about it, 17 gigawatts contract- contracted, uh,
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  as of February of this year, that's, that's quite a significant jump because
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  we're talking about, uh, starting from essentially zero just two years ago.
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  Um, that said, for the, for the hyperscalers, solar and wind continue
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  to overwhelmingly dominate pr- procurement, um, at about 83% of the
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  total, uh, in February, give or take.
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  Right, the push for clean energy, we've also seen a return to fossil fuels.
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  So what exactly is driving that?
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  Yes.
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  Um, in fact, 2025 was the year of the big gas power comeback.
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  Uh, and again, here we get back to this notion that data center
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  owners and operators are going after all the energy they can get.
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  Uh, have I mentioned that already?
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  I think I have.
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  Uh, joking aside, uh, that is really what's happening a- and I
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  suppose it's the, the reason why decarbonization goals and, and so
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  forth are, are now being questioned.
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  Um, at any rate, uh, to give you some perspective, in 2025, um, orders for gas
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  turbines surged, uh, 165% year over year, um, to reach, uh, 43 gigawatts, and that
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  was the sector's highest level since 2001.
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  Uh, and really data center owners and, and power producers do like gas fire power
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  because it is reliable, uh, and scalable, and of course, it is dispatchable.
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  And all of this is great, um, in the context of the, the challenges
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  posed by renewable intermittency.
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  Uh, adding to all this, uh, gas power offers the ability to integrate,
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  uh, carbon capture technology, which would make gas power plants a
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  viable component in the overall, um, transition to, to low carbon energy.
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  A-and before we move on, let me just reiterate that this big gas power comeback
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  i-is simply a reflection of, of, of this all-of-the-above approach we've discussed.
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  Access to power is overriding other consideration, considerations.
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  And really all of these developments in terms of renewables, nuclear,
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  gas fire power, geothermal, well, they're simply a, a reflection of the
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  magnitude of data center power demand
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  In terms of the drivers shaping these strategies, um, how
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  important are geopolitical and energy security in this calculus?
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  Yeah, that is a great question, uh, and an increasingly important one in
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  the context of, uh, the conflict in the Middle East, trade tensions, et cetera.
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  Um, and frankly, it's important to keep in mind that, um, the effective closure
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  of the Strait of Hormuz in the last few months i- is the third major shock to the
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  global energy system in about six years.
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  It follows the COVID-19 disruptions of 2020 and Russia's
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  invasion of Ukraine in 2022.
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  Uh, and in this environment, we, we argue that priorities have shifted for
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  governments and in corporate boardrooms.
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  Uh, yes, sustainability considerations remain, uh, but energy
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  availability, access, affordability have become top of mind really.
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  And as we've seen, gas-fired power has made a, a strong comeback,
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  and it offers many advantages.
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  But from an energy security perspective, it has its drawbacks really.
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  Uh, it is vulnerable to supply chain disruptions, uh, market fluctuations,
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  and really outright supply and, uh, price shocks as we saw when Russia
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  invaded Ukraine, for instance.
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  Um, technically, even nuclear is not completely immune to geopolitical
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  tensions, um, because, uh, the flow of uranium itself could be disrupted.
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  Um, in 2024, the owners and operators of US reactors imported over
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  ninety-two percent of the uranium needed to operate the US fleet.
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  Um, that said, the difference is that commercial nuclear reactors resupply every
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  eighteen to twenty-four months on average.
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  Uh, for renewables, it's different, uh, especially when the components
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  and materials going into a renewable power plant are sourced locally, um,
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  because renewable energy can help hedge power consumptions against the
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  volatility of international markets, um, they reduce exposure to fossil
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  fuel inflation, uh, they decouple electricity procurement from foreign
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  energy hubs, uh, and really renewables provide insulation against, um, transport
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  disruptions and geopolitical pressures.
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  In short, they, they provide a certain level of autonomy, of
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  independence for electricity production
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  In terms of, uh, energy security challenge, do you think renewables
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  can actually fully solve that energy security challenge?
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  They do not.
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  Um, in, in fact, I suppose it's fair to say that, uh, there really isn't
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  any silver bullet when it comes to the energy security challenge.
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  In the case of renewables, uh, they do offer undeniable security advantage-
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  advantages, as we saw, um, but that's only when the power plants are fully stood up.
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  In their development phase, they are exposed to supply chain risks, right?
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  For example, solar, uh, solar vo- uh, uh, photovoltaics and, and battery supply
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  chains are heavily concentrated in China.
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  Yet China really dominates those sectors and, um, you know, in the last few years,
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  the Chinese government has also deployed export restrictions on some raw materials
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  as a tool of geopolitical pressure.
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  Uh, for instance, this includes the rare earth that go into magnets, uh, and we
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  know that magnets are a core component of electric, uh, generators Um, this is
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  why the, the past two US administrations have put, um, policies in place to build
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  up the US solar and, um, battery, um, manufacturing base, uh, including by
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  imposing import restrictions on materials coming f- uh, from what the US government
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  deems, uh, foreign entities of concern
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  What trends are we seeing in actual energy used by data centers?
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  Yeah, data center energy consumption is rising f- at break net sp-
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  breakneck speed, uh, as we saw.
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  Um, i- if we zoom in on hyperscalers specifically, uh, they consumed,
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  uh, an estimated, uh, fifty-seven terawatt-hours of electricity
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  globally in twenty, uh, twenty.
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  Uh, that is based on the, a, a modeled y- uh, low utilization rate for data centers.
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  But fast-forward to twenty twenty-five, and that figure had been multiplied
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  by three to reach, uh, a hundred and seventy-five terawatt-hours.
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  And looking forward to twenty thirty, hyperscalers around the
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  world are expected to consume more than, uh, four hundred and thirty
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  terawatt-hours by the end of the decade.
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  Uh, uh, those are mind-boggling figures.
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  Uh, a- and they truly illustrate the paradigm shift, uh, that we
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  discussed at the beginning of our chat.
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  Now, um, data collected in the twenty twenty-five S&P Global Corporate
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  Sustainability Assessment, uh, shows that the, uh, assessed data centers… Uh,
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  sorry, data centers, uh, sourced, uh, sixty-seven percent of their energy from
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  renewable sources in twenty twenty-five.
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  Uh, and that, that, that was up sharply from fifty-two
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  percent in twenty twenty-two.
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  But as we've seen, the, the energy demand traject- trajectory is so steep
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  that increasingly other technologies are relied upon to meet those needs
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  So here is my last question for you.
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  Um, looking forward, um, what would be the likely energy mix
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  powering AI over the next decade?
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  Well, I, I would argue that, uh, all, all the factors we discussed today make
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  for a, a very fluid picture or the, the proverbial moving target, if you will.
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  Um, in the short to medium term, uh, the, the all-of-the-above strategy,
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  strategy definitely is in play.
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  And, and this could keep the, the current energy mix pretty stable.
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  A-and by the way, uh, natural gas continues to play a significant role in
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  the energy, um, in the current energy mix.
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  But the truth is that at the moment, no single solution meets
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  all needs in terms of access, in terms of costs or reliability,
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  or in terms of sustainability.
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  N-nuclear does look good on paper, um, but developing new
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  nuclear capacity takes time.
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  Uh, the technology is very complex and, and because of that, historically it has
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  faced two significant, uh, bottlenecks.
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  Uh, long permitting processes, um, and high capital intensity, uh,
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  uh, which makes financing, uh, new nuclear projects a, a challenge.
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  Uh, in the long run, decarbonization of the energy mix via the deployment
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  of renewables remains on the table.
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  And as we've seen, the need for security and contingency planning ha-has
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  bolstered the case for renewables.
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  And, and from that point of view, uh, the security argument,
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  whether you call it autonomy or independence, really overtakes talks
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  of decarbonization and sustainability.
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  And, and come to think of it, it's probably a, an easier
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  sell politically as well.
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  I mean, historically, we've seen that The population can be divided
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  on decarbonization matters.
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  But I think that everyone would agree that keeping our electricity, our modern
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  economy going i- is critical, and that, uh, we should go with the energy mix
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  that ensures that that remains the case.
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  And it turns out that renewables offer a great profile to achieve just that.
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  And, and as we've seen, in the end, well, it doesn't, it doesn't, uh,
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  really matter what the arguments for deploying renewables really are.
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  Ultimately, the result is the same from a sustainability point of view.
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  Thanks, Tony, for your insights.
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  And the takeaway today is clear.
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  AI isn't just a technology story.
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  It is also reshaping global energy systems.
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  And while sustainability remains part of the narrative, energy security and
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  reliability are now just as central to how the future is being built.
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  If you would like to dive deeper into our research and our blog posts,
• 22:09
  visit spglobal.com and explore our Look Forward Council resources.
• 22:14
  You can also connect with Tony on LinkedIn.
• 22:17
  Thank you so much for listening to the Look Forward podcast.
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  If you enjoyed this episode, please subscribe to Apple Podcasts, Spotify,
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  or YouTube, and we'll see you next time