September 2025 Newsletter

ELECTRICITY DEMAND AND AI

Most of us pay a power bill, and the price we pay for electricity is rising faster than the overall inflation rate. Most experts point to AI data center buildouts as one of the primary drivers of increased demand. With increased demand, the only way to keep prices in check is to increase supply. Over the last 20 years, electricity supply has largely been boosted by natural gas generating plants. Despite the political push for wind and solar renewable energy, their contribution to the electric energy mix accounts for only about 14% of our electricity production. The problem is that these sources are intermittent, so power producers must rely on traditional sources to compensate when the wind doesn’t blow or the sun doesn’t shine. Battery backup plants are coming online, largely in areas with significant solar production, mostly out west, but they are not yet at a SCALE to make a significant impact.

The location of current AI buildouts has largely been driven by areas with existing or former excess electric energy production. That low-hanging fruit has mostly been exhausted. As I write this article, Elon Musk’s efforts with xAI, for instance, rely on an AI data center in Memphis. It’s power-hungry. Natural gas production and battery backup are how they plan to provide the estimated 1.2 gigawatts of power consumption. That’s more than the production of one nuclear power plant. xAI’s efforts are just one example; many more data centers are being built and planned across the country.

Is 24/7 non-CO2-producing electric production the holy grail?

Nuclear generation is one answer, but it’s a very expensive, slow, and red-tape-laden enterprise. Nuclear energy’s revival has been promoted for many years, but it’s always 10 to 15 years away.

There is a ray of hope to meet some of this demand, and it’s right beneath our feet—and it can scale much more quickly.

GEOTHERMAL!

There is much irony in the fact that technology from the dirty, polluting oil and gas industry is largely enabling the most promising clean energy production. Fervo Energy is working in Utah on real geothermal energy production at scale. With new drilling technology, they are drilling down about 3 miles, then horizontally about 1 mile, pumping water down that returns as steam to generate electricity. The deeper you drill, the hotter the rock gets. Fervo’s location in Utah is ideal for their start, and they plan to produce about half a nuclear plant’s output by 2028.

Fervo is not the only company; many startups are entering the game. Sage Energy, based in Texas, claims drilling up to 4 miles deep can be economical at 7 cents per kilowatt-hour. They combine geothermal with CO2 turbine electric production rather than the traditional use of water and steam. Quaise Energy has a pilot drilling platform in Texas that they claim will eventually use extremely high microwave energy to drill much deeper, reaching extremely hot rock at 900°F below 20,000 feet. The world record for deep drilling was the Russians’ abandoned effort at 8 miles. At 900°F, supercritical steam is possible, which could be much more energy-rich.

CO2 turbines, while very new, offer up to 20% or more efficient production. This technology is being developed and could one day replace many traditional steam turbines. CO2 turbines are also much smaller—about one-tenth the size for the same energy output as steam. A 20% increase in production from a smaller, less water-intensive technology with a smaller footprint will be a big deal.

So, there is hope that one day we can lower the cost and pollution of electricity production.

Thanks, Andy McClung CFP TM

Sources: NPR.org, Horsley; Google.com search; Gatesnotes.com; Quaise.com

2025 Market Results – 9/8/2025