AI Data Center Power Wars: Brown vs. Clean vs. Renewable Energy Sources
March 19, 2025
I/O Fund
Team
- While traditional brown energy remains a significant energy source for AI data centers, clean and renewable energy continues to grow in capacity.
- Goldman Sachs believes 40% of new data center capacity will be from renewables.
- Hyperscalers and data centers are adopting a mixed energy portfolio, combining brown, clean, and renewable energy to balance emissions while ensuring 24/7 reliability.
As the artificial intelligence (AI) revolution drives the growth of AI data centers, the topic of energy continues to gain prominence. AI data centers cannot function without energy sources, and how that power is generated seems just as important as how reliable the power is. Energy sources are commonly labeled brown, clean or renewable. Goldman Sachs says AI data center power consumption demand is expected to grow by more than 160% by 2030 from 2023 levels. Let’s take a look at each of these sources and how efficient and reliable they can be for AI data centers.
What is Brown Energy?
For decades, the world has relied heavily on brown energy from fossil fuels like oil, coal and natural gas. These dominant fuels powered the Industrial Revolution and remain the primary sources of electricity for the grid today, with coal and natural gas generating nearly 60%.
- Coal-fired power plants are some of the worst offenders as they release enormous amounts of carbon dioxide and greenhouse gases into the atmosphere. Thermal efficiency (TE) measures how effectively a fuel’s heat is converted into electricity. Coal has some of the lowest TE efficiency, around 33%.
- Natural gas is the top fuel source for powering the electric grid at 43% and is cleaner than coal but still contributes carbon emissions when it's burned. TE is between 35% to 42% on a simple cycle gas turbine and up to 62% when using combined cycle gas turbines (CCGT), which use the exhaust heat to boil water in a steam turbine, adding the extra 20% to 25% TE.
Join thousands of investors who trust I/O Fund’s expert stock analysis on AI, semiconductors, cryptocurrency, and adtech — sign up for free! Click here!
The environmental impact of burning fossil fuels has paved the way for the clean energy and decarbonization movement. The combustion process produces carbon emissions, which contribute to air pollution and climate change. As AI data centers consume massive amounts of electricity, they’re also trying to meet clean energy initiatives.
What is Clean Energy?
Clean energy has much less environmental impact, producing low to zero greenhouse gas emissions. It also generates less pollution and leaves a smaller carbon footprint. Some examples of clean energy are:
- Solar power generates electricity using sunlight and photovoltaic panels with TE between 15% to 22%.
- Wind power generates electricity by harnessing kinetic energy from the wind with turbines with mechanical efficiency (ME) between 35% to 50%; since they don’t operate on thermal cycles, there isn’t heat conversion.
- Hydropower generates electricity from water flowing through turbines, again no thermal cycle but the ME is 85% to 95% since the momentum of the water converts to power with almost no loss.
- Geothermal power uses the heat emanating from the earth’s core with a low TE ranging from 10% to 23%
- Nuclear energy generates power through fission, heating water to create steam that drives turbines, with TE averaging between 33% to 37%.
For AI data centers, the most practical clean energy sources come from nuclear, solar and wind power. While the efficiency of hydropower is exceptionally high, it isn’t practical for data centers due to factors like heavy capex to build dams and reservoirs, environmental impacts and geographical limitations. Clean energy enables data centers to lower their carbon footprint and enhance their environmental reputation.
What is Renewable Energy?
Renewable energy comes from natural processes that are replenished at a faster rate than consumed, such as solar, wind, and hydropower. While renewable energy is typically clean, meaning it generates low carbon emissions, not all clean energy sources are renewable. For example, nuclear power is considered clean but not renewable.
While solar and wind power are renewable and clean energy, they aren’t available 24/7. They would require a battery (storage) system to match the 24/7 reliability of nuclear and natural gas. As for supply costs, renewable energy sources are actually cheaper than generating electricity from natural gas. According to a report by Goldman Sachs, solar energy costs $25 per megawatt-hour (MWh) compared to CCGT natural gas at $37/MWh. But there's a reason natural gas costs more: reliability.
“In practice, though, utility-scale solar plants only run around 6 hours per day on average, while wind plants run for an average of 9 hours per day. There is also day-to-day volatility in the capacity of these sources, depending on the radiance of the sun and the strength of the wind.” Solar is not effective during cloudy and overcast days, whereas nuclear and natural gas plants can run around the clock every day regardless of weather. Goldman Sachs believes that 40% of the new capacity built to support data center power demands will be renewables.
The Mixed Energy Sources Portfolio Approach
Many hyperscalers and data centers have adopted a mixed energy portfolio approach utilizing brown energy and clean or renewable energy to balance the emissions and maintain a green stance.
Goldman Sachs Infrastructure analyst Jim Schneider commented, “Our conversations with renewable developers indicate that wind and solar could serve roughly 80% of a data center's power demand if paired with storage, but some sort of baseload generation is needed to meet the 24/7 demand.” While the baseload power preference is nuclear, building them is just too difficult, which makes natural gas and renewables the most practical solution short-term.
The I/O Fund recently entered five new small and mid-cap positions that we believe will be beneficiaries of this AI spending war. We discuss entries, exits, and what to expect from the broad market every Thursday at 4:30 p.m. in our 1-hour webinar. For a limited time, get $20 off a Monthly Pro plan with code PRO20OFF [Learn more here.]
Disclaimer: This is not financial advice. Please consult with your financial advisor in regards to any stocks you buy.
Recommended Reading:
Get a bonus for subscription!
Subscribe to our free weekly stock
analysis and receive the "AI Stock: 5
Things Nobody is Telling you" brochure
for free.
More To Explore
Newsletter
2025 Market Outlook: Why Stocks and Bonds Are Signaling More Volatility
As the S&P 500 reaches a key bounce target, troubling signs in bonds and consumer behavior suggest this market rally may be on thin ice. I/O Fund’s Knox Ridley explains why volatility may intensify an
The Impact of Tariffs on the Stock Market: Q1 Preview
Rising tariffs are injecting significant uncertainty into the stock market, triggering daily volatility and forcing analysts to revise earnings estimates. Our Q1 preview dives into the potential impac
Tesla Stock Faces Recalibration of Growth Expectations
Tesla’s stock is now facing a recalibration of expectations after Q1’s delivery report missed by a wide margin. Q1’s analyst consensus has gone from $25.98B at the start of the year to $23.97B in earl
The Fed Can’t Save This One: Why Bonds May Break the Stock Market in 2025
In early 2025, as markets rallied to new highs, we warned that divergence across key sectors signaled a looming correction. Now, with all major indexes in a technical bear market and bond market dysfu
Oracle Stock Outlook: Revenue Could Double by FY2029, yet Targets Seem Lofty
Late in 2024, Oracle outlined an ambitious plan to nearly double its revenue by fiscal 2029, hinging on long-term growth in enterprise AI and cloud spending. Oracle sets itself apart from its hypersca
I/O Fund Reports 210% Cumulative Return -- Ranking Above Wall Street's Best
In 2024, I/O Fund posted a 35% return, significantly outperforming popular tech ETFs, which recorded an 8% return over the same period. On a cumulative basis, the results translate to a remarkable 219
The Harsh Truth: Retail Investors Take the Brunt of Market Losses
Retail investors face significant disadvantages in the stock market, often underperforming institutional investors by a wide margin. Studies show that high-frequency trading firms dominate market acti
NVIDIA’s GB200s for up to 27 Trillion Parameter Models: Scaling Next-Gen AI Superclusters
Supercomputers and advanced AI data centers are driving the AI revolution, enabling breakthroughs in deep learning and large-scale model training. As AI workloads become increasingly complex, next-gen
NVIDIA Blackwell Ultra Fuels AI & HPC Innovation, Efficiency and Capability
NVIDIA’s latest Blackwell Ultra GPU, unveiled at NVIDIA GTC 2025, is transforming AI acceleration and high-performance computing (HPC). Designed for the “Age of Reasoning,” these cutting-edge GPUs del
Nvidia CEO Predicts AI Spending Will Increase 300%+ in 3 Years
Nvidia has traversed choppy waters so far in 2025 as concerns have mounted about how the company plans to sustain its historic levels of demand. At GTC, Huang threw cold water on many of the Street’s