Lately, many of our clients have been asking, “What happened to the energy transition?” The answer brings to mind the phrase, “The King is dead, long live the King.” While the original context of that phrase may be unclear, its spirit applies here: the old energy transition has ended, but a new one is already taking shape. The earlier focus, shifting generation from fossil fuels to renewables, has now given way to a transition centered on building enough dispatchable generation (beyond intermittent wind and solar) to meet the surging power demands of large data centers.

According to the White House’s document, Winning the Race, America’s AI Action Plan, the AI arms race is critical to the new energy transition. This document states:

"America must have the most powerful AI systems in the world, but we must also lead the world in creative and transformative application of these systems. Achieving these goals requires the Federal government to create the conditions where private-sector-led innovation can flourish."

In this letter, we review the changing requirements of this new energy transition, the policies implemented by President Trump, and our progress in meeting the new energy transition’s objectives.

President Trump’s Energy Policy: A clear change in focus

President Biden’s energy policy prioritized responding to the risk of climate change. The United States rejoined the Paris Climate Accord, and his executive agencies, the Department of Energy, EPA, and other agencies pursued policies that promoted solutions to climate change. Biden’s signature legislation, the Inflation Reduction Act, incentivized wind, solar, battery and other low carbon sources of energy.

Two fundamental changes happened almost simultaneously and marked the end of the old energy transition and the start of the new energy transition. First, after almost ten years of stagnant energy growth, we have seen a dramatic increase in energy demand. The key cause of this demand is data centers. As a result of this change, the focus on energy’s carbon content is being replaced with a focus on energy supply and cost. Second, President Trump was elected president. His administration discounts the risk of global warming and has replaced Biden’s focus on renewable generation with a focus on building dispatchable generation¹ and increasing our production of fossil fuels.

The speed with which President Trump has adopted these new policies and pushed to have regulatory agencies and courts turn these priorities into action is remarkable. Recent actions include:

Regulatory Actions Impacting Electricity Supply:

• Declared a national energy emergency. The lack of energy supply is a threat to national security, economy, and foreign policy.
• Paused the permitting of offshore wind projects
• Passed the One Big Beautiful Bill which significantly reduced incentives for wind and solar generation
• Initiated US withdrawal from Paris climate accords
• Issued an AI Action plan
• The EPA announced 31 actions to promote deregulation. A few of those that impact the energy market include:
  • Reconsidering the 2009 finding that greenhouse gas emissions endanger public health and welfare
  • Revisiting the EPA’s policies that address power plant emissions
  • Reviewing regulations that impose restrictions on the oil and gas industry
  • Reconsidering EPA's rules that impose strict limits on Mercury and other toxic emissions, which limit permitting of coal plants

Development of Fossil Fuels:

• The Department of the Interior implemented emergency permitting procedures to expedite the development of domestic energy resources
• Lifted restrictions on oil and gas production in Alaska
• Directed agencies to expedite permitting for energy projects on federal lands and waters
• Ended the pause on LNG export initiated by President Biden

The Status of the New Energy Transition: Is Demand Showing Up?

In spite of aggressive projections of future demand, data center load growth has yet to outrun current supply. This is somewhat surprising given the speed with which new data centers are being built. There were over 5,000 data centers in operation in the United States as of March 2025, with a peak demand of around 21 GWs. This volume pales in comparison to recent projections of future builds. For example, on August 7, 2025, Oncor announced that it has 200 GW of interconnection requests, 186 GWs of which are data centers. That number far exceeds the size of the ERCOT market in total. PJM’s projections are equally dire. A recent load forecast shows peak load growing by 32 GW from 2024 to 2030, almost all of this attributable to data centers.

These expectations are consistent with forecasts issued by the EIA and international energy consultants like ICF. These projections are shown below in Figures 1 and 2.

Figure 1: Expected Electricity Load Growth, EIA

Figure 2: Data Center Growth, from
Powering the future: Addressing surging U.S. electricity demand, ICF

In spite of these projections, looking at today’s price of electricity and natural gas, it is clear that demand has not yet outpaced supply. Wholesale energy prices remain within recent trading ranges. Figure 3 shows the range of wholesale electricity prices in PJM over the past 5 years (the gray bars) and how the forward price for calendar years 2025-2028 is currently trading. While it is true that capacity prices have increased significantly, and this suggests a need for additional generation, the futures market price for energy remains relatively flat.

Figure 3: Spot and Future Electricity Prices at PJM West Hub, 5 

In PJM, supply continues to meet demand. The same is true in ERCOT and is reflected in Figure 4 below.

Figure 4: Spot and Future Electricity Prices at ERCOT Houston Zone, 5 

The Status of the New Energy Transition: Is Intermittent Supply Showing Up

There is no question that the Federal government’s focus on adding generation and reducing regulatory requirements will make it easier for fossil fuel projects to get permitted. Over the past year or so, regulated and deregulated markets are also taking steps to increase the supply of dispatchable generation resources. There is a consensus to keep older plants running to meet reliability goals, even if these plants emit relatively high levels of greenhouse gases.

The Department of Energy has successfully ordered two power plants that were scheduled to be retired to keep running. These are:

• 1,560 MWs from the J.H. Campbell coal power plant on Lake Michigan
• 760 MWs of peaking oil and gas power at Eddystone, PA near Philadelphia

These orders were supported by regulators and state politicians, however, it is unclear who is going to pay the additional cost needed to keep these units running. For example, the DOE’s order to force the J.H. Campbell coal plant to keep running past its planned retirement date is costing the plant owner, Consumers Power, $29 million over just five weeks. It is unclear who or how Consumers Power will be repaid this cost.²

In other cases, market regulators have had to promise additional revenue to keep older coal and oil plants running. The best example of this is the reliability must run (RMR) contracts provided by PJM to the Wagner and Brandon Shores Plants. Unlike the DOE action, we know that consumers will ultimately pay the cost of these RMR contracts under PJM's rules.

In addition to extending the life of older plants, PJM, ERCOT and NYISO have all explored ways to incentivize new generation. For example, PJM issued an expedited interconnection process aimed at accelerating the development of shovel ready projects. This reliability initiative generated applications for some 26.6 GWs of new generation and over 9,000 MWs of new projects were selected. Figure 5 shows that the vast majority of the new projects are natural gas fired.

Figure 5: PJM’s Interconnection Process, Constellation Energy

Texas has offered low interest loans to spur the construction of new dispatchable generation. According to Governor Abbott, there are 15 applications for state loans that will support over 8,000 MWs of new dispatchable generation. So far, only two of these loans have been finalized. NRG announced on August 4, it had closed a $216 million loan from the State of Texas to help finance a new 456 MW natural gas plant in Houston. The facility is already under construction and is expected to be in operation by the summer of 2026. The Texas Energy Fund has also approved loans for a 122 MW natural gas facility to be constructed by Kerrville Public Utility Board (KPUB), which is projected to begin operations by June 1, 2027. It is likely that taxpayers in Texas will absorb the cost of these low interest loans.

Others look to nuclear generation as the answer. The Trump administration is acting quickly to expedite the permitting of new nuclear plants. As shown in Figure 6 from Constellation Energy’s investor report, nuclear power has bipartisan support, since it is the only dispatchable energy source that can generate a material amount of electricity and does not emit greenhouse gases.

Figure 6: Bipartisan Support for Nuclear Energy, Constellation Energy

A list of some of the new nuclear projects that have been announced is summarized below. Note that no one expects new nuclear generation to enter the market in the near future. The only exception to this is the restart of a few recently closed plants that had already been in operation:

• TerraPower Natrium: 345 MW advanced reactor, under construction, with commercial operation to begin in 2030
• Kairos Power Hermes: Demonstration reactor in Oak Ridge Tennessee. First non-water cooled reactor approved for construction. Targeted operation in 2027.
• Palisades: 800 MW plant receives Federal approvals to restart just 3 years after shut down. Plan to be operational by October 2025 but facing community opposition and an issue with boiler tube cracks.
• Three Mile Island Unit 1 restart: 20 year PPA with Microsoft, hope to restart by 2028.
• NextEra looking to restart Duane Arnold which was shut down in 2020.
• Virgil C. Summer plant expansion: looking to restart Santee Cooper, construction abandoned after spending $9 billion. 2,200 MW facility.

The Status of the New Energy Transition: Needed transmission and distribution

The challenges faced by power plant developers are minor compared to the difficulty of building the transmission lines needed to deliver new generation to customers. Two key questions arise: first, whether long-distance transmission lines can actually be built, and second, whether regulators have the political will to allocate the costs of these investments to ratepayers.

While the FERC can approve the construction of interstate transmission lines, it does not have the power to mandate these interstate projects. Unless a project involves national security, it is hard to see how the Federal Government can use its eminent domain powers to actually site a project.  Comparing transmission development in the U.S. to China gives some sense of the problem at hand.

• China can build new power lines in under 5 years. It takes the United States between 10 and 20 years to build a new power line.
• China has centralized the process for permitting new power lines. The US faces complex multi-state regulatory approval processes and cost allocation challenges that significantly delay projects.
• China is currently building 80 times more high-voltage transmission than the United States. In 2022, China invested $166 billion in its transmission grid, surpassing the combined grid investments of all other countries.

The second challenge lies in deciding how to pay for this infrastructure. In a centralized system, transmission costs can be allocated as needed. In the U.S., however, overlapping federal and state regulations make cost allocation more complex, particularly when generation is sited in less-developed areas and the electricity is transmitted to regions with higher demand.

Even without significant interstate transmission development, updating existing transmission and distribution systems is increasingly expensive. A quarterly update from PowerLines details how utility rate hike requests and approvals have reached approximately $29 billion in the first half of 2025, more than doubling the total from the year-ago period. These rate increases will have a dramatic impact on customer bills. 

Figure 7 in ICF’s chart below shows this impact in four ISOs:

Figure 7: Residential Electricity Rates by ISO, from Rising current: America's growing electricity demand, ICF 

We are active in several regulatory proceedings, and it is no surprise that regulators are focusing on data centers as the reason for dramatic rise in distribution rates. It is unclear how the necessary transmission investments can be made without significant changes to energy regulations.

The Status of the New Energy Transition: Can tech companies solve the problem they are creating?

If the projected data center demand shows up, it remains unclear how the U.S. market will meet this demand. One option is that these data centers will be supplied outside of the normal market construct. Data centers are exploring various options including: (i) the construction of behind-the-meter power plants that exclusively serve the data center’s load, and (ii) power purchase agreements with generators or utilities that are structured in a way that they do not impact the cost of energy supply for other consumers.

The NY Times recently highlighted the proactive role of large tech companies in solving their power needs, in an article dated August 14, 2025:

"Just a few years ago, tech companies were minor players in energy, making investments in solar and wind farms to rein in their growing carbon footprints and placate customers concerned about climate change. But now, they are changing the face of the U.S. power industry and blurring the line between energy consumer and energy producer. They have morphed into some of energy’s most dominant players.

They have set up subsidiaries that invest in power generation and sell electricity. Much of the energy they produce is bought by utilities and then delivered to homes and businesses, including the tech companies themselves. Their operations and investments dwarf those of many traditional utilities."

Projects in development by tech companies include the following:

• Microsoft: PPA to finance Constellation’s restart of a unit at Three Mile Island
• Amazon: PPA with Talen’s Susquehanna nuclear generation unit
• Google: PPAs with Kairos Power and TerraWulf
• Meta: Developing $10 billion data center in Louisiana to be powered by three new natural gas power plants

Regulators are also passing new rules that require data centers to solve their own power needs. In Texas, recent legislation was passed (SB 6) that could impose additional costs on operational constraints on new data centers. A report just issued by the PJM market monitor, Monitoring Analytics, suggests imposing additional restrictions on data centers that enter the PJM market.

“The MMU recommends that large data centers be required to bring their own generation with locational and temporal characteristics reasonably matched to their load profile and that this approach include an expedited queue option that would permit both the load and the generation to be added without delays.”

The economic power of leading tech companies gives further credence to the thought that the data companies will figure out an answer to the needed supply. The combined market capitalization of the leading U.S. tech companies exceeds $18 trillion dollars. This is greater than the GDP of all countries in the world with the exception of the United States (around $25 trillion). In addition, President Trump has said that winning the AI Arms Race is another of his priorities. It is too early to tell how the combination of the tech companies’ wealth and the President’s approach to AI could change the energy market. One thing is clear, the entrance of tech companies into the energy market creates additional uncertainty around market rules and prices.

The central challenges of today’s energy transition are not so different from those of the past. Under President Biden, the focus was on expanding renewable generation and transmitting power from large rural solar and wind projects to urban load centers. Under President Trump, the emphasis has shifted to adding dispatchable generation from natural gas and nuclear power plants to serve growing demand from data centers. In both cases, the ongoing challenge is modernizing the nation’s energy infrastructure while keeping costs reasonable for ratepayers, a task that proved just as difficult under the Biden Administration as it does for the Trump Administration.

Conclusion

Our approach to managing energy risk is unchanged; supply and demand are much more important in dictating future energy prices than Federal energy policies. We are constantly updating our assessment of markets and believe that this is an important time to take an active approach to managing energy price risk. Of course, please do not hesitate to reach out to us to see how we can help your organization manage its energy costs during this new energy transition.

[1] In this letter, we use the term dispatchable generation to refer to natural gas, oil, coal, and nuclear power that are not intermittent. This is in contrast to wind and solar generation, where the output fluctuates based on weather conditions. 

[2] Grid Strategies used the cost of a dozen recent reliability-must-run contracts from around the U.S., $89,315/MW-year, as a proxy for the estimated cost of keeping fossil plants open due to a DOE mandate.  

AUTHOR
JON MOORE
Jon has spent decades in the energy space with expertise that includes international power plant development, utility-scale solar, and retail electricity. Prior to launching 5 as one of the co-founders, Jon served as Executive Vice President at Beowulf Energy, a private power and infrastructure company with a focus on the development, acquisition, and long-term operation of power generation and infrastructure projects. He also held executive leadership positions with MX Holdings, Juice Energy, AES NewEnergy, Constellation NewEnergy, and the AES Corporation. Early in his career, Jon worked as a transactional attorney with O’Melveny & Myers in Washington, D.C.

As Chief Strategy Officer at 5, Jon guides the firm through strategic issues and opportunities, originates new business, and leads many of the company’s acquisition efforts. Jon produces the 5’s quarterly market reports providing a macro perspective of the various factors impacting the industry. Jon also applies his extensive legal expertise in managing corporate and regulatory matters for 5, as well as providing advice on supplier contracts to ensure that clients’ interests are protected.

Jon received his Juris Doctor from Yale Law School and was awarded his undergraduate degree magna cum laude from Princeton University’s Woodrow Wilson School.