When creating economic policy, the ideal outcome is a win-win. More often, however, where there are winners, there are also losers. For the incoming Trump Administration and power markets, we see many tradeoffs with emerging winners and losers. Ascend Analytics has a 20-year history of market forecasts and economic modeling of energy projects, from wind, solar and storage to thermal resources like natural gas plants. Our economists constantly adjust our outlooks to account for changing market conditions, and the incoming administration introduces many potential variables.
In examining the potential policy changes, the Trump Administration is pro-energy but may be more technology-neutral than many expect. Their ideal world is not just one of American energy security, but one of American “energy dominance.” This goal presents both headwinds and tailwinds for clean energy projects and their potential value, with winners and losers across not only different energy supply stack options, but perhaps even more importantly, across time depending on where projects are in their development cycle.
Tariffs and potential changes to the Inflation Reduction Act (IRA) are likely to increase future costs for many inputs into power supply. These potential changes will likely lead to increased inflation and higher capital costs for new energy supply projects, renewables and otherwise. However, for near-term energy projects, up to 5 years out, safe harbor practices and secured supply can, to an extent, protect them and possibly make them more valuable, along with existing generation that now lives in a time-bound “walled-garden.”
Winners: Late-stage projects and existing generation.
Losers: Long-lead time greenfield capital-intensive projects in search of financing.
While cost increases may dampen commitment to projects further out, states’ clean energy policies remain aggressive and corporate clean energy goals continue to grow, independent of federal policy. The Trump Administration is also aggressively pro-growth and will do what it can do to encourage and foster the expansion of American computing. Data center and AI load, and the generation required to serve those facilities, will likely receive the permitting and interconnection assistance needed to maintain the velocity of the industry. Pro-growth policies, combined with state and corporate clean energy goals, will accelerate the value of late-stage and operating projects and may also serve to get a lot of clean energy online as fast as possible. Trump’s own statement on energy goals commits to “cutting red tape, enhancing private sector investments, focusing on innovation over...unnecessary regulation.” These efforts could lead to permitting reform that may speed new development and be a boon to clean energy projects, blunting some of the inflationary headwinds.
Geography also matters. Open land with good wind and solar resources gives the Western two-thirds of the country an advantage versus the heavily forested, less-windy, and less-sunny Eastern US, although policy commitments in the Northeast will still support development. The New York and New England markets will be the most heavily impacted and will need to make hard choices between meeting policy targets and maintaining retail rates at reasonable levels.
Winners: Inside track projects and the Western U.S.
Losers: Northeast markets facing tough choices.
“Drill, baby, drill.” Trump’s energy dominance stance also includes increasing the supply of natural gas, both for domestic consumption and to “sell to our friends,” including European nations. Increasing LNG exports will lead to higher domestic gas demand, moving up the classic supply curve and actually raising gas prices. Additionally, domestically produced clean energy allows increasing energy exports, further supporting “energy dominance.”
Winners: Supply resources that are cheaper than LNG.
Losers: Buyers of natural gas who will pay more.
Nuclear energy, as recently as a few years ago thought of as an unwieldy expensive solution, becomes a potential solution for specific geographies and for customers with less elastic demand. Data centers, with their flat load profile and owners with deep pockets, make nuclear a potential solution in their toolbox. With expanding load, nuclear can potentially service the ESG demand for a clean peak resource at a competitive cost relative to other expensive solutions, like hydrogen, in geographies where building the renewables to produce green hydrogen is cost-prohibitive. Heavy renewable headwinds in the eastern third of the U.S., for example, strengthen nuclear’s position. Here, small modular reactors (SMR) may be competitive with offshore wind and hydrogen if they hit their cost targets and offshore wind does not, though that remains a big ‘if’ in the nuclear industry. SERC-based utilities have included advanced nuclear in their IRPs, and other similarly positioned regions may look to nuclear if tariffs and tax-credit repeal for clean energy technologies come in strong.
Winners: Nuclear in high renewable cost regions, especially the Eastern 25% of the U.S.
Losers: Offshore wind and greenfield solar in the northeast.
Winning in this environment of relentless load growth and energy dominance will require a strategic “all-of-the-above” approach. Overall, we will see a narrowing set of conditions where renewables are the ideal choice, and legacy thermal generation will be pushed to stay online longer than planned. Many energy buyers will not have the luxury of choice, either due to state-level mandates or competitive growth pressures. Those that do are likely to select a more diversified “all-of-the-above” portfolio of their own to serve their needs, including some difficult choices along the way.
