In the 1950s and 1960s, the US was in a “space race” with the Soviet Union. The competition to develop satellites and rockets had commercial and scientific goals, but also clear military objectives, highlighted by the Soviet Union’s launch of the world’s first intercontinental ballistic missile in 1957.

In the modern era, artificial intelligence (AI) has emerged as the new field for great power competition. AI similarly has civilian uses in business and scientific research, but also many military applications in cybersecurity, for autonomous weapons systems and in intelligence processing.

As he prepares to take office in January, President-elect Donald Trump has been highlighting the importance of what he calls “the AI arms race” with China and other countries, and putting it at the heart of his energy strategy.

Announcing the nomination of Governor Doug Burgum of North Dakota to be his Secretary of the Interior and head of a new National Energy Council at the White House, the president-elect said that “dramatically increasing baseload power” would “win the battle for AI superiority, which is key to national security and our nation’s prosperity”.

It is a view you will hear echoed across the tech industry. I spoke last week at the AI Clean Energy Summit in Seattle, where one of the other speakers was Dana Adams, president for North America of Vantage Data Centers. She emphasised that power for AI was a national security issue, saying: “We are in a race for global supremacy for AI technology.”

For businesses and politicians that want to increase investment in low-carbon energy, those words offer some encouragement about the outlook over the next four years. If increasing power supply for AI is going to be one of the administration’s top priorities, then any investment that adds to generation capacity on the grid should be welcome.

At COP29 in Baku, for the Energy Gang podcast, I talked to representatives of two US states – California and New Mexico – that are committed to continuing with action to curb emissions. One of the key themes in that conversation was that those states are not aiming to pick fights with the new administration immediately but will look for areas where their policy goals are aligned. The need to accelerate investment in power generation can be one of those areas.

Reform of permitting processes to expedite infrastructure investments attracts bipartisan support for changes that could benefit all energy sectors, including renewables. The permitting reform bill proposed by senators Joe Manchin and John Barrasso appears to be facing an uphill battle to be passed into law in the final weeks of the current Congress. But if it fails, another attempt next year seems certain.

The president-elect’s reference to baseload power underlines his support for fossil fuel and nuclear generation, as opposed to renewables. But wind, solar and storage are generally the quickest forms of generation to build, and they make up the overwhelming majority of the projects already in a queue for a grid connection. Wind and solar are also, on average, the lowest-cost sources of new supply, in levelised cost of electricity (LCOE) terms, and are favoured by many buyers, including the big technology companies.

So if the goal is simply boosting electricity supply as fast as possible, then the wind, solar and storage industries can make a case for being included in the mix.

Wood Mackenzie view

On the campaign trail, President-elect Trump has been a critic of wind and – to a lesser extent – solar power, and a supporter of new fossil fuel generation. In office, it’s clear he will seek to tilt the balance of policy support away from renewables. But his ability to reshape the US energy landscape will be constrained by political realities, legal and regulatory frameworks, and the structure of the industry.

The tax credits for low-carbon energy under the 2022 Inflation Reduction Act (IRA) will be in the line of fire from the new administration. Scott Bessent, the hedge fund manager who President-elect Trump has nominated to be his Treasury secretary, has described the IRA as the “Doomsday Machine” for the US budget deficit.

However, Wood Mackenzie analysts believe full repeal of the IRA is unlikely. It would have to be passed by Congress, and the Republicans will have only a slender majority in the House of Representatives. Mike Johnson, who will be returning as Speaker of the House in the new term, said in September that “you’ve got to use a scalpel and not a sledgehammer” when making changes to the tax credits.

Even if the credits for wind, solar and storage are eliminated, those technologies will still be economically attractive in many locations.

Rising shares of variable renewables on the grid raise concerns about reliability. But state regulators, regional transmission organisations (RTOs) and independent system operators (ISOs) have been taking action to try to head off any looming problems. Legislation proposed recently by a Republican member of Congress would support those moves, helping new fossil fuel projects take a fast track through the process of securing a connection to the grid.

However, Congress encouraging that action by RTOs and ISOs would be one thing. An administration mandating support for new fossil fuel generation would be quite another. “It is hard to see how the federal government could compel independent system operators across the country to prioritise grid connections for new natural gas-fired power plants,” says Brian McIntosh, Wood Mackenzie’s research director for power and renewables.

“States play important roles in energy regulation, and some would push back against any attempt by the Trump administration to mandate increased investment in fossil fuel generation."

President-elect Trump has said he plans to declare a “national emergency” on energy, which would give him powers to bring more fossil fuel generation on to the grid. Under the Federal Power Act of 1935, the administration can declare an emergency “by reason of a sudden increase in the demand for electric energy, or a shortage of electric energy or of facilities for the generation or transmission of electric energy”.

Declaring an emergency in that way gives the administration the authority to order temporary connections for additional supply, and any “generation, delivery, interchange, or transmission” that it thinks is needed in the public interest.

Those powers have been used 11 times by the Biden administration, but typically only for a period of a few days, to waive emissions controls on gas and coal plants while grids are under short-term strain. Using the law to try to drive long-term changes in the US power industry would be a very different approach.

Something the Trump administration could do to accelerate investment in new gas-fired generation would be to make it easier to connect power plants that are co-located with data centres or other large loads.

Wood Mackenzie’s McIntosh says: "As hyperscale data centers rush to add capacity and bring on additional power supplies, they are running into very significant delays in grid interconnection queues. That is driving widespread interest in building co-located generation close to data centers. The Trump administration would be sympathetic to those projects, and could try to clear away regulatory hurdles."

The Federal Energy Regulatory Commission provided an example of those hurdles earlier this month, when it rejected a proposed grid interconnection agreement that would have helped Amazon buy power from the Susquehanna nuclear plant in Pennsylvania for a nearby data centre that it has bought.

The planned interconnection agreement raised concerns because it did not conform to the standard terms offered by the grid operator PJM. Two FERC commissioners – a majority of the three who voted on the agreement – ruled that it should be blocked because PJM had failed to demonstrate that the non-standard provisions were necessary.

However the lone dissenter, the commission’s chairman Will Phillips, argued that the decision created a national security risk. “Maintaining our nation’s leadership in this ‘era-defining’ technology will require a massive and unprecedented investment in the data centers necessary to develop and operate those AI models,” he wrote. “And make no mistake: access to reliable electricity is the lifeblood of those data centers.”

He added: “I am deeply concerned that in failing to demonstrate regulatory leadership and flexibility we are putting at risk our country’s pole position on this critically important issue. That is simply unacceptable.”

In his view, those national policy considerations meant that FERC should have approved the interconnection agreement, even though the concerns raised by other commissioners were valid. The new Trump administration can be expected to argue on similar lines.

In Wood Mackenzie’s downside scenario for renewables, US installations of wind, solar and storage over the coming decade are about 30% lower than we projected in our base case forecast before the election.

In a market where demand for electricity is growing faster than it has done for two decades, and the government is determined to help the industry meet that demand, the overall environment for investing in power in the US should be favourable. Even for renewables, although there clearly will be challenges, the outcome may be better than that worst-case scenario suggests.

COP29 concludes

The COP29 negotiations in Baku, Azerbaijan, concluded at around 5.30am on Sunday morning with a deal on climate finance that left many developing countries disappointed. My colleague Simon Flowers, Wood Mackenzie’s chief analyst, has full details and an assessment of the implications for energy in his latest note.

In brief

Scott Bessent, President-elect Trump’s pick for Treasury secretary, has said boosting US oil and gas production is one of his keys for strengthening the US economy. He has reportedly said that he favours a “3-3-3 policy”, which means cutting the budget deficit to 3% of GDP by 2028, using deregulation to boost annual GDP growth to 3%, and producing an additional 3 million barrels of oil equivalent per day.

That production goal, at least, looks eminently achievable. On Wood Mackenzie’s base case forecast, the US was already projected to increase oil and gas output by more than 4.5 million barrels of oil equivalent per day from 2024 to 2028.

Northvolt, the Swedish battery startup that European governments had hoped would become a regional champion to rival Chinese suppliers, has filed for bankruptcy protection in the US. The company said the bankruptcy would “help secure Northvolt’s long-term mission to establish a homegrown, Western industrial base for battery production”. At the time it went into bankruptcy, it had debts of US$5.84 billion, and cash on hand of just US$30 million. The route to Northvolt’s collapse began in June, when BMW cancelled a multi-billion-dollar order, Bloomberg reported.

Indonesia’s President Prabowo Subianto has announced a plan to retire all the country’s coal and other fossil fuel power plants by 2035, and replace them with renewables. The state-owned utility, Perusahaan Listrik Negara, told the Associated Press that while it was fully committed to increasing renewable generation, it faced challenges in delivering the plan. One of the key issues is that the best locations for renewables in Indonesia are often far from the main demand centres.

BP has given final investment decision to a US$7 billion LNG project in Indonesia. The Tangguh UCC project will develop the Ubadari gas field to supply the existing Tangguh LNG plant, where a third train went into operation last year.

The new project will include Indonesia’s first at-scale enhanced gas recovery with carbon capture, utilisation and storage (CCUS). BP sees LNG as central to the energy transition: it aims to expand its LNG portfolio from 23 million tons per year (mmtpa) to 25 mmtpa by 2025, and is targeting 30 mmtpa by 2030.

Other views

High-impact oil and gas exploration could cut global scope 1 and 2 emissions by 6% in 2030

Why tariffs won't save our car industry – Luis Garicano

The global green transition will survive Trump – Alan Beattie

Quote of the week

“In Germany, we have been acting (for years) as if the issue of adding secure capacity is something that can be postponed. Yet we can already clearly see today what happens when we switch off capacity and do not provide any backup for renewables. No, we don’t have any more time, quite the opposite. Time is running out. The expansion is urgent.”

Markus Krebber, chief executive of RWE, posted on LinkedIn to warn about the strain on Germany’s power grid that was exposed by the surge in wholesale prices in the first week of November. Germany’s electricity supply had “reached its limits”, he said, with “dunkelflaute” weather conditions resulting in very low output from both wind and solar power. He added that on days with higher demand, the same situation would not have been manageable, showing the urgent need to add more dispatchable generation capacity, such as fossil fuel power plants to the grid.

Chart of the week

This comes from our recent Horizons report, ‘No country for old fields: Why high-impact oil and gas exploration is still needed’, by Andrew Latham and Simran Bandal. It shows the average size of oil and gas discoveries, measured in millions of barrels of oil equivalent, broken down by the type of play.

You can see that deepwater is well ahead of any other theme, in terms of the size of the discoveries that have been made. Latham and Bandal say that since 2000, important new geological plays have typically emerged every 18 months, and an overwhelming majority of these “needle-moving” discoveries have been in deepwater environments. Even now, after three decades of such exploration, most of the world’s deepwater basins are barely drilled. Take a look at the full paper for our analysis of what that means for the future of oil and gas exploration.

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