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What might halt America’s artificial intelligence boom? There are many potential candidates. One is swelling anti-tech populism: a new survey shows 58 per cent of Americans do not trust AI.
Excess leverage is another: AI-linked firms are not just gobbling up oodles of private credit but plan to issue a record $450bn in bonds this year, according to the Institute of International Finance. A third risk is that cheaper, better forms of AI will usurp the costly, proprietary large language models beloved of Silicon Valley.
But there is also a fourth, more humdrum issue: electricity. If the AI boom keeps accelerating, global electricity demand for data centres is projected to double by 2030, with even bigger jumps in the US and China.
Beijing has already prepared by installing an eye-popping 1,500 gigawatts of new energy capacity since 2021, taking its total to 3,891GW. However, the US has not: its installed capacity has barely risen in recent years, and now sits around 1,373GW — or less than what China added in just four years.
This is shocking. Worse, China will add over 3.4 terawatts of electricity-generation capacity in the next five years, according to Bloomberg — six times as much as the US.
Unsurprisingly, the American tech sector is alarmed. Jensen Huang, head of Nvidia, for example, told the FT last year that China could “win the AI race” with the US because its “power is free”. Elon Musk says that “based on current trends, China will far exceed the rest of the world in AI compute” because it will have three times America’s electricity output by late 2026.
And OpenAI has called for government action. “The US leads the world in developing AI [but] keeping that edge requires far more electricity than the US can currently provide,” it declared in a memo last year. “Electrons are the new oil.” (Which is ironic given that data was previously hailed by techies as the “new oil”.)
But whether President Donald Trump can — or will — act is unclear. On Tuesday he declared in his State of the Union address that “we’re telling the major tech companies that they have the obligation to provide for their own power needs” so that “no one’s prices [as a consumer] will go up”. Next week he will apparently flesh that out in a White House meeting with Big Tech executives.
But don’t expect him to wave a magic wand. It will be hard to shield voters from a looming energy squeeze, even if Trump does bully the tech companies into building their own generators. To cite one issue: since many data centres use diesel generators as a backup, “price increases of 20 to 50 per cent could be expected in the tight global diesel market” soon, according to Philip Verleger, an energy economist.
Another enormous problem is electricity transmission. China has raced to build high-voltage lines in recent years. But America has not. This cannot be fixed by the private sector or states without federal action because lines typically cross state borders. However, there has hitherto been very little done — either by Democratic or Republican presidents. “In 2008, a new [transmission] project typically had to wait less than two years to get connected. But by 2024, it was over 4.5 years,” notes Heather Boushey, former economic adviser in the Biden White House.
Worse still, Trump is waging ideological war on renewable energy. Yes, China is using fossil fuels to expand its grid (including, lamentably, coal). But as Kyle Chan, an energy expert at Brookings, notes: “Over half of China’s [recent] electricity growth during [the last decade] has come from clean energy sources, such as wind, solar and hydropower.” These are fast and cheap to install — even before noting the climate change benefits.
But Trump’s “drill, baby, drill” mantra makes him reluctant to embrace renewables even as a complementary power source, let alone as a replacement for fossil fuels. Indeed last summer the energy department terminated a planned $4.9bn loan guarantee for an 800-mile “Grain Belt Express” power line intended to take wind power from Kansas to Illinois and Indiana. This is mad.
So can America close the gap with China? Some White House officials tell me it can, by using federal powers to install transmission lines and forcing Big Tech to pay for huge energy investments.
David Victor, a professor at UC San Diego, thinks more innovation will also help. “The really big [future] story in energy will be energy-saving innovation for the chips,” he says. “Many of the scenarios for rapacious energy growth for data centres are quite frothy [since] many of these projects will not be needed, especially if the AI bubble bursts.”
One hopes so. But unless — or until — this occurs, the saga will be yet more evidence of why joined-up, proactive, pragmatic policies can outperform a governance system plagued by polarisation and excess financialisation. Future US historians may well weep. But right now, tech investors should ponder the grubby real-world problems of power — in both a political and literal sense.