Will the Data Center Boom Support Climate Goals or Derail Them?

Solar power plant at Google’s St. Ghislain, Belgium, data center. Source: Google.

The surge in data center power demand is reverberating through the power generation industry. On one hand, it is forcing a massive scale-up of electricity supply, and on the other, it’s providing new impetus for investments in renewable energy. According to the IEA, meeting data centers’ rising needs will require tapping a diverse set of generation sources, with renewables (like wind and solar) and natural gas expected to take the lead due to cost and availability. In practice, tech companies and data center operators have become some of the world’s largest purchasers of renewable power. Power purchase agreements (PPAs) for wind and solar farms are a primary tool: companies contract long-term to buy clean energy, financing new renewable projects in the process. Data center operators are among the biggest exponents of corporate PPAs, as they seek to meet sustainability goals and lock in energy pricing. For example, Amazon is now the single largest corporate buyer of renewable energy in the world, with over 500 renewable projects (solar and wind farms) contracted to supply about 77,000 GWh (77 TWh) of clean electricity annually. Microsoft, Google, Meta (Facebook), and others likewise have signed dozens of PPAs, collectively accounting for many gigawatts of new wind and solar capacity. These deals directly tie data center expansion to new renewable generation: each new data hall often comes paired with investments in off-site wind/solar farms (or equivalent credit purchases) to claim “100% renewable” operations. In 2022 alone, tech firms led by Amazon, Meta, and Google procured several gigawatts of renewables, making up a substantial portion of all corporate renewable procurement globally (corporates signed 36 GW of clean energy that year, much of it for data centers). This trend is helping drive down the cost of renewables by guaranteeing demand. Large, creditworthy companies committing to buy power for 10–20 years de-risk renewable projects, enabling developers to finance more wind and solar farms at lower cost of capital. In effect, data center demand is making renewables more bankable and accelerating their deployment. Many remote wind and solar projects in the U.S. heartland, for instance, were built thanks to off-take contracts from cloud providers powering their East Coast facilities via the grid.

Furthermore, the scale and 24/7 power needs of data centers are spurring innovation in clean energy beyond just wind and solar. Intermittent renewables alone cannot fully match a data center’s round-the-clock consumption profile, so companies are seeking firm, always-available green power. This has made technologies like energy storage, geothermal, and even advanced nuclear reactors increasingly attractive. Google, for example, has a goal of sourcing carbon-free energy on a 24/7 basis for its data centers by 2030 (not just offsetting annual usage with renewables, but hour-by-hour matching clean supply to load). To achieve this, Google is backing projects in advanced geothermal and exploring small modular nuclear reactors to secure new firm capacity for its data centers. Microsoft has gone a step further. In 2023, it signed a landmark agreement with fusion energy startup Helion to purchase 50 MW of electricity from a planned fusion power plant by 2028. While fusion is an experimental bet, the deal (backed by OpenAI’s Sam Altman as an investor) underscores how data center operators are willing to invest in cutting-edge generation tech if it promises abundant clean power. These moves could help scale up and commercialize new energy sources, potentially making them more cost-competitive over time through early adoption and economies of scale.

Crucially, the demand from data centers is not only spurring new renewable projects but also changing the timing and location of renewable deployment. Many data centers are being built in regions with good access to cheap renewable power (or where companies can arrange direct access to green energy). For instance, hyperscale data centers in the U.S. Pacific Northwest tap into large hydroelectric supplies; those in the Midwest often pair with wind; and some Nordic European data centers take advantage of plentiful hydro and wind (and cold climate for free cooling). There is a mutual reinforcing effect: data centers seek cheap, clean power, and their presence then justifies grid investments or new generation in that area. A clear example is in Virginia’s “Data Center Alley” – historically a coal/gas-powered grid – where the influx of data centers has pushed the local utility (Dominion Energy) to dramatically expand solar and procure wind energy to meet corporate sustainability demands. In 2023, Dominion planned up to 21 GW of new solar, wind, and storage by 2035, partly to serve tech customers, while also controversially proposing new gas plants to maintain reliability.

At the same time, natural gas generation remains an important (if problematic) part of the equation in many markets to handle the constant and backup needs of data centers. For example, Dominion Energy in Virginia has indicated it might add ~6 GW of new gas generation by 2036 to cope with surging data center load (raising questions about the state’s clean energy targets). Similarly, in Singapore – which recently lifted a moratorium on new data centers – officials now require applicants to meet strict efficiency standards and encourage them to use energy storage and imported clean energy, but natural gas still supplies the bulk of Singapore’s power. What makes it attractive are its high reliability, low upfront costs, and higher inertia. Gas plants can provide on-demand power and are cheaper to start, requiring less land and financing. Moreover, their spinning turbines provide physical inertia that stabilizes grid frequency during sudden load changes, a feature that inverter-based renewables replicate through digital control systems and synthetic inertia.

Yet from a long-term cost perspective, solar-plus-battery systems are emerging as strong competitors. Their levelized cost of electricity (LCOE) is now broadly comparable to that of new gas combined-cycle plants, even without federal incentives. Lazard’s 2025 analysis estimates the LCOE for utility-scale solar-plus-storage at $50–$131/MWh, versus $48–$109/MWh for gas. Further, the cost for solar-plus-storage is coming down exponentially due to a global lithium-ion battery surplus and technological improvements in energy density and lifespan. Conversely, natural gas prices have increased in 2025 due to increased demand. This shifting cost dynamic strengthens the case for clean, dispatchable renewables as the more sustainable long-term solution.

(Source: Lazard)

The interplay between data centers and renewables is complex: on one hand, data centers’ energy hunger is driving investment in renewables and could make emerging green technologies scale faster, but on the other hand, if not managed carefully, it can also lock in new fossil fuel infrastructure (as a “quick fix” for reliability) and make it harder to decarbonize the grid. The hope is that continued pressure from tech firms for carbon-free energy – coupled with their capital to invest and the rapidly improving economics of solar-plus-storage – will tilt the balance toward clean innovation.