Solar power will become the world's largest electricity source by 2035 on economic grounds alone, according to BloombergNEF, but artificial intelligence and data center expansion will lock in decades of continued fossil fuel reliance, revealing the limits of market-driven energy transitions.
The shift toward solar reflects straightforward economics rather than regulatory mandates. Matthias Kimmel, head of energy economics at BloombergNEF, stated simply: "Solar is winning the race." Solar costs are expected to drop another 30% by 2035, outcompeting coal and natural gas through mass manufacturing and declining production expenses that show no sign of stopping.
The Market-Driven Energy Shift
The solar expansion is being driven by cost reduction rather than government policy, with prices falling dramatically as installed capacity doubles. In the fourth year following Russia's invasion of Ukraine, Pakistan added 25 gigawatts of solar power after natural gas prices spiked, demonstrating how market forces—not mandates—reshape energy infrastructure. By 2050, solar panels are expected to generate more than twice as much electricity as natural gas.
China's industrial policy has accelerated this transition by subsidizing solar manufacturers and flooding the market, while competitive manufacturing has pushed costs down at a pace exceeding historical expectations. Kimmel noted that "costs fall with every doubling of installed capacity," and in solar's case, the decline has proceeded even faster than that trajectory.
The abundance of solar power is creating secondary market opportunities. Grid-scale battery installations worldwide reached 112 gigawatts last year, with BloombergNEF projecting that figure will nearly triple by 2035. Companies from Redwood Materials to Ford have launched energy storage businesses to capitalize on the trend. In Spain and Italy, developers are responding to surplus daytime solar power by building hybrid renewable plants that pair solar panels with batteries to capture higher evening electricity prices.
Data Centers and the Fossil Fuel Reality
Yet the energy transition faces a fundamental constraint: artificial intelligence and data center expansion will require massive new power supplies that solar alone cannot reliably provide. BloombergNEF expects data centers to drive demand for an additional 1 terawatt of utility-scale solar, but also for 370 gigawatts of natural gas and 110 gigawatts of coal generation.
Because natural gas and coal can operate continuously around the clock, BloombergNEF forecasts those fossil fuels will provide 51% of incremental generation for data centers by 2050. This means tech companies and data center developers will have "an outsized influence over which energy sources remain viable by mid-century," according to the report.
Google has attempted to address this challenge by investing $1 billion in 100-hour batteries from Form Energy for a recent data center project, signaling that long-duration energy storage could reduce fossil fuel dependence. Other technologies are competing for the data center market, including geothermal and nuclear power, which received investor enthusiasm following recent blockbuster IPOs of Fervo Energy and X-energy.
Market Competition and Realistic Forecasts
BloombergNEF acknowledged that its forecasts are not ironclad, with multiple competing technologies vying for dominance. The battery market currently occupies a position similar to where solar stood in 2020, suggesting rapid cost declines could accelerate adoption of storage solutions.
The report examined two scenarios for energy independence. Under an economic transition scenario, in which decarbonization is driven by market economics rather than regulations, every country would reduce reliance on foreign energy imports, including oil-dependent Saudi Arabia. Under a net-zero regulatory scenario, every country would virtually eliminate energy import dependence. Kimmel observed that "the transition, which in many ways is cost efficient, is actually good for energy independence."
Why This Matters:
This analysis reveals that market forces are reshaping global energy infrastructure more rapidly than policy mandates, with solar becoming economically dominant through cost competition rather than government intervention. However, the simultaneous surge in data center demand demonstrates the limits of any single energy source—even one experiencing exponential cost declines—to meet comprehensive power needs. The continued reliance on fossil fuels for data center baseload power through 2050 indicates that energy transitions driven by economics alone will take decades longer than aggressive regulatory scenarios would suggest. For policymakers and investors, this underscores the importance of allowing multiple energy technologies to compete in the market rather than picking winners through subsidies, while recognizing that data center operators—not governments—will ultimately determine which energy sources remain economically viable.