What the US midterm elections mean for energy

The language being used to describe the Democratic Party’s successes in the US midterm elections has been dramatic. The results, which will make the Democrats the largest party in both the Senate and the House of Representatives, have been called “an extinction-level event” and “a Chernobyl-level disaster” for the Republicans.

But despite the adrenaline-fuelled commentary, not much will change in US energy policy when the new Congress is seated next year. President Donald Trump has pledged to use his veto power to block legislation he sees as harmful, and the Democrats will not have the two-thirds majorities in the Senate and House needed to override those vetoes. To pass, legislation will need support from Republicans, probably including the president.

Meanwhile, President Trump will retain the ability to implement his agenda through regulations and executive actions. The signature initiatives of his second term, his tariff strategy and the conflict in the Middle East, have been pursued without any formal support from Congress, and he will have broad leeway to take action despite the gains made by Democrats. 

The most significant impact on President Trump’s actions is likely to come from increased scrutiny, as a result of Democrats taking control of Congressional committees and setting their own agenda for investigations.

In many areas, the Democrats will not want to force a sharp break with the Trump administration. One of the critical factors behind their election success was American voters’ concern about the cost of living, and the Democrats have pledged to improve the affordability of essentials including energy. They have shown little enthusiasm for taking actions that could restrict oil and gas production and drive up prices. 

That said, some aspects of US energy will be affected by the election results, with some impacts growing in significance over time. Wood Mackenzie analysts have been looking at what are likely to be the most material consequences of the elections for US energy.

What could change with a Democratic-controlled Congress

Permitting reform

For the US energy industry, the most important issue in Congress right now is permitting reform: proposed changes in how permits for large infrastructure projects are awarded and reviewed, with the goal of expediting development and controlling costs.

A permitting reform bill with backing from both Republicans and Democrats, the proposed Bipartisan American Affordability and Jobs Act (BAAJA), was launched last month, and will be voted on in Congress this week.

Wood Mackenzie analysts believe that permitting reform legislation, if passed in a form close to the BAAJA, could make a material difference to development timelines for projects including oil and gas pipelines, power transmission lines and wind farms.

The bill has won bipartisan backing by striking a compromise between the interests of the oil and gas industry and low-carbon energy sectors, with support from groups representing both. But it has also been attacked from both sides, as a “fossil fuel giveaway” and as a way to “re-open the taxpayer and ratepayer spigot to endless and endlessly expensive wind and solar”.

Supporters of the bill have hoped to get it passed this year. But the Democrats’ success in the midterm elections has led some to suggest that they should refuse to support the current proposed legislation, in the hope of securing a better deal when they control Congress next year. Others have argued that the BAAJA, which has support from President Trump, is likely to be the best deal available.

The outlook for the legislation is uncertain, and the energy industry will be closely watching how events in Congress play out over the next few weeks.

Legislation to compel data centre developers to pay for new generation and grid upgrades

Other potentially significant legislation addresses public concerns about data centre development and its impact on electricity costs. The proposed Ratepayer Protection Act was passed with overwhelming support in the House in September, but has not yet come up for a vote in the Senate. If passed, it would require state regulators to consider adopting standards to compel new data centre projects to cover the full costs of the grid and the generation infrastructure needed to support them.

The bill still leaves ultimate decision-making in the hands of the states, and has been criticised for not doing enough to ensure residential customers are protected. Another proposed bill, the GRID (Guarding Ratepayers from Increased Demand-costs) Savings Act, would go further. It would establish a national mandate for data centres and other large loads to cover their associated electricity costs, and direct the Federal Energy Regulatory Commission (FERC) to establish national rules to enforce that.

Action to protect customers from rising electricity costs has bipartisan support, and will be on the agenda for the next Congress. President Trump launched his own Ratepayer Protection Pledge in March, with backing from the leading tech companies.

However, the president is also a strong supporter of the development of advanced AI capabilities, as both an economic and national security priority for the US. He will be reluctant to impose additional burdens on the industry that could curb its growth. Negotiations over a possible compromise on data centres and electricity bills are likely to take place next year.

State and local restrictions on data centre development

Nearly everywhere they were given the option, voters repudiated data centre development. There were 41 proposals related to data centres on the ballot in 13 states, and on 40 of those a majority of voters backed restrictions on development.

Candidates who spoke out against data centres often did well in state and local races. But opposition to uncontrolled development has been bipartisan, with Republican governors including Ron DeSantis of Florida and Greg Abbott of Texas announcing restrictions.

There has been particular interest in Texas, which has more proposed new data centre capacity than any other state. Gina Hinojosa, the Democrat who will be the state’s next governor, said that under her leadership “we will have laws to protect Texans, and we need to stop what we are doing with data centres until we have those protections”.

She has argued for an extension in the pause in approvals for new data centre projects that was put in place by Governor Abbott. She also wants to ensure that data centres are covering their electricity infrastructure costs. But projects that are already under construction will be allowed to continue, and Governor-elect Hinojosa has said she does not want to stop data centre development altogether.

“We can have economic development and we can have protections for Texans. These things are not mutually exclusive,” she has said.

Wood Mackenzie analysts have modelled a Moderated Demand scenario showing the possible implications for the electricity industry of increased restrictions on data centre development, worsening delays for grid connections and continued equipment shortages. That scenario still envisages significant growth in data centre demand, albeit at a slower pace than in our base case forecast. For a good overview of the outlook for data centre development, listen to Episode 7 of our podcast, The Load Down, from August 2026.

Immigration reform

In an interview over the weekend, President Trump identified immigration law reform as a priority for working with Democrats in Congress. Depending on how the reform is structured, that could help ease the skills shortages that are growing problems for energy and other infrastructure projects.

Ideas for a future Democratic administration

The resounding success for Democrats in the midterms has inevitably raised expectations that they could enjoy further success in the 2028 presidential election. Taking the presidency, and retaining control of Congress, would give the Democrats the ability to reshape the US energy landscape.

Two years is a long time in politics, and any number of events might deliver a different outcome. But that has not stopped speculation about the possible energy policy agenda for a future Democratic president.

One comprehensive set of ideas for the Democrats’ agenda has come from the Thriving Economy Project from the Sustainable Energy & Environment Coalition Institute. The group, working with Democratic House members who are interested in energy and the environment, has produced a “menu of ideas” for the incoming Congress, and the next administration.

Its proposals include tax incentives, regulations and government financing to support the development of low-carbon energy. It addresses issues of environmental protection and emissions reduction to tackle climate change, which were priorities for the Biden administration. But it also has much more of a focus on issues that are of more immediate interest to American voters, including energy prices and the cost of living in general.

Based on that report, and other ideas that have been circulating in Washington, these are some of the possibilities that are being talked about for a future Democratic administration.

An Inflation Reduction Act 2.0

The Inflation Reduction Act of 2022, which expanded and extended tax credits for renewable energy, was passed with support only from Democrats, and many of its key provisions were subsequently repealed by the Republicans. Many in the renewables industry want to avoid a repeat of that policy whiplash.

Ray Long, president and chief executive of Acore, the renewable energy industry group, told me on a recent edition of the Energy Gang podcast that the starting principle for any future tax framework should be durability. Banks and investors will have more confidence in the prospects for renewable energy projects if they can expect that taxes and regulations will remain stable through changes of administration and changes of control in Congress. That will mean bipartisan support for any proposed legislation.

Tax incentives that serve bipartisan goals, such as the 45X credits for advanced manufacturing, are most likely to be strengthened.

A windfall tax on oil and gas

The Thriving Economy Project report suggests creating a “strategic energy affordability reserve”, funded by a windfall tax on the profits of the oil and gas industry. If the president declares an energy emergency, funds from the reserve would be released to the states, to help residents with energy bills and transport costs, and to subsidise purchases of energy-efficient appliances.

This proposal is likely to be one of the most controversial for any future administration, if it is taken up in earnest. Disincentivising investment by imposing additional taxes on the oil and gas industry could hit production, working against the goal of bringing fuel costs down.

New controls on energy exports and scrutiny of LNG project approvals

As fuel prices have surged this year, the Trump administration has evaluated possible export controls, but it has not imposed any restrictions. The consensus view in the industry, shared by Wood Mackenzie analysts, is that such controls would have been counter-productive, actually raising costs for American consumers.

However, the Democrats on the Thriving Economy Project have suggested an “energy price safety valve” mechanism that would temporarily constrain exports of LNG, gasoline, diesel and home heating oil.

Their report also says the government could ensure that any new LNG export projects would not raise costs for American consumers before issuing any approvals.

The Biden administration’s review of US LNG exports in 2024 suggested that the industry’s growth would have only a fairly modest impact on the prices paid by American residential customers. Even in the Department of Energy’s low gas supply scenario, projecting growth in LNG exports to meet global demand resulted in modelled residential prices in 2050 rising just 7%. In the middle scenario, modelled prices rise by 4%.

However, those estimates were drawn up before the most recent projections of strong growth in US gas demand for power generation, which could amplify the impact of LNG exports.

A mandate for data centres to use renewables and storage

Although data centre developers can avoid putting additional strain on grid infrastructure by building their own power plants, they can still put upward pressure on gas prices if they are using gas turbines and engines. And if gas prices rise, that will in turn put upward pressure on power prices. To prevent that, the Thriving Economy Project proposes a mandate for all new data centres to use renewables and energy storage for their power supplies.

Power market reform and a review of utility returns

Another focus for the Thriving Economy Project’s is wholesale electricity markets. The report argues that even before the AI boom, there was already a strong case for power market reform to encourage investment in wind, solar, and battery storage. The surge in electricity demand for data centres has made the case for reform urgent, it adds, because better price signals could reduce total system costs.

The report also suggests a review of utility business models to ensure that they prioritise affordability for ratepayers as well as reliability. Regulation could be reformed to strengthen incentives for utilities to bring down costs.

Other views

Putting the 'renew’ into renewables – Simon Flowers, Gavin Thompson, Søren Lassen and Charles Coppins

Speed to power: solutions to US data centres’ challenges – Simon Flowers

Adapt or die: why oil refineries must evolve to survive – Chris Barry, Alan Gelder, Savankumar Aghara and Kian Akhavan

El Niño's long shadow over fuel demand – Gordon McManus and Edgar Manzano

Need to know: gas in Winter 2026-27 – Randall Collum and others 

Three key takeaways from our Houston Energy Trading Conference – Jim Mitchell and others

US wind: what utilities and developers need to know – Diego Espinosa, Kárys Prado and Tyler Gifford

Quote of the week

 “I would if necessary, but we hit them really hard… So it’s highly unlikely I’ll have to.”
President Trump’s answer when asked during an interview with CNN whether he expected to escalate US attacks on Iran. Qatar has been working on a plan to resolve the conflict and allow free movement of shipping through the Strait of Hormuz.

Chart of the week

This chart, showing price trends for two key battery raw materials, is derived from our recent report: ‘Sodium-ion batteries: commercialisation begins, economics to follow’.

Check out the full report for details of how the competition between lithium-ion and emerging sodium-ion battery technologies is shaping up.
 

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