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| A
substation connects
wind turbines to
transmission lines
near Pomeroy, Iowa.
Credit: Scott
Olson/Getty Images
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U.S.
energy markets and
policy are heading
toward the equivalent
of a multicar pileup
in 2026.
The key factors are
consumer frustration
with rising energy
prices, Trump
administration
policies that are
making the problem
worse despite promises
to make it better and
a growing awareness
that investment in AI
data centers is part
of a bubble that could
pop at any time.
I asked seven experts
for their outlook on
what we’ll be talking
about in 2026 and
almost all of them
touched on this set of
intertwined problems.
Call it a crisis or a
disaster. Or just call
it terrible politics
for the party in power
ahead of November’s
midterm elections.
Prices
Are High, and
They’re Going to Get
Higher
Robbie
Orvis, senior
director for
modeling at the
think tank Energy
Innovation,
said he expects energy
affordability to be
the major issue of the
year. He pointed to
the rising wholesale
price of natural gas
and how that is likely
to translate into
higher utility bills,
since gas is the
country’s leading fuel
for power plants and
home heating.
“I don’t anticipate
that people's home
energy bills are going
to go down anytime
soon,” he said.
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The
country’s benchmark
price of natural gas
has risen from an
average of $2.19 per
billion BTUs in 2024
to forecasts of $3.19
in 2025 (full-year
figures for 2025 are
not yet available) and
$4.01 in 2026,
according to the
Energy Information
Administration’s
short-term outlook.
Gas prices are rising
for many reasons,
including an increase
in exports of
liquified natural gas,
mainly to Europe, and
growing demand from
U.S. gas-fired power
plants.
Orvis also highlighted
the Trump
administration’s
policy of requiring
old coal plants to
remain online, even
when their owners
would otherwise have
closed them for
economic reasons. The
administration has
done this several
times, citing the need
to maintain the grid’s
reliability during
periods of high
demand.
The result is that
utilities are forced
to operate plants they
wanted to close, which
are dirtier and more
expensive than readily
available
alternatives.
Meanwhile, the
least-expensive option
for new power plants
in most of the world
is utility-scale
solar. Even if we
include the cost of
batteries to allow
solar to be stored for
nighttime use, solar
is a low-cost leader,
as shown by research
that includes a report last month from energy think tank Ember.
We
Need to Build New
Power Plants. Good
Luck With That
The
federal government
could respond to
rising prices by
rapidly building new
power plants. But the
country’s permitting
system, supply chains
and recent policy
decisions are harming
the ability to provide
relief.
Some of these problems
predate the Trump
administration. But
President Donald Trump
has made things worse
with executive orders that add restrictions on the
development of wind
and solar power,
including a stop-work order in December that halted
construction on five
offshore wind
projects.
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Michael
Webber, a professor
of engineering and
public affairs
who studies energy at
the University of
Texas at Austin, puts
this problem in the
form of a question:
“Do we return to
normal for permitting
energy projects or
will every project
have to price in the
risk that the
president might
impulsively cancel
it?” he asked in an
email.
He said this risk is a
cost driver for
developers that will
be enough to stop some
marginal projects and
drive up rates for
consumers.
When
Does the Data Center
Bubble Pop and Who
Gets Hurt?
Our
crystal balls are not
super precise on some
topics. For example,
several people said
the investment in AI
data centers and
forecasts of rising
electricity demand to
power them are part of
an investment bubble.
But it’s unclear if
this market will face
its reckoning in 2026
or later.
The larger problem is
that AI companies are
spending tens of
billions of dollars to
build gigantic,
energy-sucking data
centers, often without
clear plans for how
these projects are
going to make money.
“There’s a bubble, and
what's going to end up
happening is there's
going to be a
consolidation,” said Stephen
A. Smith, executive
director of the
Southern Alliance
for Clean Energy,
an advocacy group
based in Knoxville,
Tenn.
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In
a consolidation, the
companies with the
weakest business plans
will go bust and the
companies with viable
plans and ample cash
reserves will pick
over the wreckage.
One of the main
questions, Smith said,
is how much consumers
will need to cover the
costs of unwise
investments to power
data centers.
The worst-case
scenario would be if
utilities make
substantial
investments to meet
data center demand and
the demand doesn’t
fully materialize,
leaving the costs to
be paid by households
and other consumers.
Some states, including
Indiana and Ohio, have
adopted rules to try
to make data center
developers assume much
of this risk. But much
of the country has yet
to thoroughly explore
what happens to
utilities and their
consumers in a data
center bust.
State
Utility Regulators
Know They Need to Do
Something, But There
Are No Easy Answers
State
utility commissions
have helped set the
table for the
affordability crisis
by approving rate
increases and spending
that push the limits
of what ratepayers can
afford.
Commissioners, along
with governors and
members of state
legislatures, “are
finally taking heed of
their policy
missteps,” said Kent
Chandler, senior
fellow for the think
tank R Street
Institute
and former chairman of
the Kentucky Public
Service Commission.
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Chandler
expects that some
state-level
discussions will focus
on introducing
competition in areas
where utilities now
have local monopolies,
with the hope that
market forces can help
contain costs.
At the same time,
states and regions
that already allow
competition in
electricity and
natural gas markets
may go in the opposite
direction and explore
giving utilities more
leeway to build power
plants and pass costs
on to consumers.
If this sounds
disjointed, that’s
because it is. The
larger point is that
officials will respond
to frustration with
rising prices by
wanting to be seen as
taking action.
The
EV Market Will
Continue Its Swoon
for Much of the Year
The
decision by Congress
and Trump to eliminate
consumer tax credits
for electric vehicles
will cast a pall on at
least the first half
of 2026 and maybe
longer. The credit
phaseout in the One
Big Beautiful Bill Act
last summer led to a
sudden surge in EV
purchases before the
incentives expired at
the end of September,
followed by an
expected drop-off in
sales.
“We're going to see
sales be a bit more
tepid,” said Mryia
Williams, executive
director of Drive
Electric Columbus
in Ohio.
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The
problem is that
potential buyers “are
not sure what's going
on with anything,” she
said.
Automakers have some
high-profile EVs
coming this year,
including the
redesigned Chevrolet
Bolt and the new
Rivian R2. But some
companies also are
reducing and
redirecting their
funding for EVs,
including Ford, which
discontinued the F-150
Lightning pickup as a
fully electric model
and is replacing it
with a gas-electric
hybrid.
Williams has concerns
that eliminating tax
credits sends the
wrong message to
automakers and
consumers at a time
when other countries
are moving ahead of
the United States in
building the vehicles
of the future. That
said, she remains
confident that the
world will make a
near-complete shift to
EVs, even if U.S.
policymakers decide
they want to move more
slowly.
Democrats
Are Poised for Gains
in Midterms, But Is
This Going to Be a
Wave Election?
It’s
normal for the party
that’s not in power to
gain seats in Congress
in the first midterm
election after a
presidential election.
And, considering that
Republicans’ majority
in the U.S. House is
fewer than five seats,
it would surprise
nobody if Democrats
win control of the
chamber.
The larger questions
are about the scope of
Democrats’ gains,
including whether the
party will pick up
enough seats to gain
control of the U.S.
Senate and make
substantial progress
in governor’s offices
and state legislative
chambers.
A big part of the
answer will depend on
how effectively
Democrats communicate
their agenda in terms
of voters’
affordability
concerns, said Caroline
Spears, founder and
executive director
of Climate Cabinet,
an advocacy group that
supports pro-climate
candidates in state
and local races.
“Voters are angry
about rising prices,
and we have an
undercurrent of
instability in the
economy that has
become more of a
feature rather than a
bug in the last few
years,” she said.
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Spears’
organization is
focusing on states
such as Arizona,
Michigan, Minnesota
and Pennsylvania,
where flipping just a
few seats could make a
big difference on
climate and energy
policy.
She highlights Arizona
as a state with a huge
upside in terms of
Democrats being close
to having enough
control to unlock more
of the economic
benefits of solar
power.
“The extreme
anti-clean energy
legislation we’re
seeing out of the
sunniest state in the
country is just
astonishing,” she
said.
To underscore this
point, she noted that
Massachusetts has more
solar power jobs than
Arizona, a fact that
should be upsetting to
Arizonans.
Why
Aren’t We Talking
More About
Efficiency?
Now
it’s time for the
closer: Amory
Lovins, an engineer
and cofounder of RMI,
has done about as much
as anyone to foster
research and advocacy
about energy
efficiency and
conservation.
I saved him for last
because the discussion
of rising energy
demand should, and
could, turn into one
about the need for
greater efficiency.
Efficiency can take
many forms, including
batteries with higher
energy density, solar
panels that can
capture more sunlight
and computer servers
that require less
electricity to perform
the same tasks.
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He
expects to see
progress in 2026 but
thinks more about how
actual progress
compares to what could
be achieved with the
right investment,
research and policy
support.
The obstacles aren’t
technical or economic,
he said. They’re
mainly cultural and
institutional.
“This is not
low-hanging fruit that
you harvest and then
it gets scarce and
expensive,” he said.
“This fruit has fallen
off the tree and is
pushing up around our
ankles, rotting faster
than we can harvest
more.”
He didn’t discuss
efficiency in partisan
terms, but I will. We
have a president who
has taken steps to
weaken government
requirements that
products become more
efficient, casting
this as a matter of
consumer choice. Trump
said in his “Unleashing American Energy” executive order
that he is
safeguarding “the
American people’s
freedom to choose from
a variety of goods and
appliances” including
lightbulbs,
dishwashers, washing
machines, gas stoves,
water heaters, toilets
and shower heads.
While Trump said this
is a consumer-friendly
action that will save
money, decades of
research on efficiency
standards show the
opposite to be true.
The Trump
administration has
said its actions on
the standards will
save $11 billion, but
this is based on an
estimate of the cost
of the rules that
doesn’t include
savings on utility
bills. If we consider
the costs and
benefits, the
standards have a net
savings of $43
billion, according to
an analysis from the Appliance Standards
Awareness Project.
So, in an election
year amid an energy
affordability crisis,
one side is actively
hostile to energy
affordability.
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Other
stories about the
energy transition to
take note of this
week:
Offshore Wind
Developers Seek
Quick Court
Resolution to Allow
Construction to
Resume: Ørsted
and Equinor, two of
the companies building
offshore wind farms,
have gone to court to
seek permission to
resume construction of
two large projects
that were stopped by a
Trump administration
order, as Diana DiGangi reports for Utility Dive. This
is in addition to
Dominion Energy’s
request that a court
allow it to resume
work on a separate
offshore wind farm,
which will be the
subject of a hearing
next week. Interior
Secretary Doug Burgum
had ordered a stop to
construction last
month, saying there is
new evidence that
offshore wind could
pose national security
risks, but he didn’t
go into detail about
the risks.
Negotiations
on Permitting Reform
Hit a New Roadblock:
The Trump
administration’s
stop-work order for
offshore wind has made
Senate Democrats pause
negotiations on a
measure that would
streamline the federal
process for approving
construction of new
energy projects,
according to Sen.
Shelden Whitehouse,
D-R.I., as reported by Kelsey Brugger of E&E News.
Members of both
parties have been
working on this
proposal, but there
remain some major
sticking points,
including the fact
that House Republicans
want the legislation
to favor fossil fuel
projects and Democrats
are asking for limits
on the Trump
administration’s
ability to pick and
choose which projects
happen.
EVs Take a
Back Seat at
Consumer Electronics
Show: The
Consumer Electronics
Show, taking place now
in Las Vegas, has
become a showcase for
new EV models and
technologies in recent
years. But this year,
automakers are not
planning any major
debuts of new EVs,
signaling a shift in
emphasis for
manufacturers in
response to the Trump
administration cutting
incentives for the
vehicles, as Abhirup Roy reports for Reuters. Instead,
much of the emphasis
this year is on AI,
robotics and
self-driving vehicle
technologies.
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