MW Why cheaper power looks unlikely as Trump's big budget law reshuffles the U.S. energy landscape

By Myra P. Saefong

The new law 'sets the scene for less or no growth in most renewables,' says commodities-economics professor

President Donald Trump's signature One Big Beautiful Bill Act, which became law earlier this month, is likely to change the nation's energy landscape - potentially leading to higher power costs just as the race to grow artificial intelligence heats up.

The budget megabill "represents a dramatic shift that will fundamentally reshape U.S. energy markets," as it introduces new restrictions for renewable-power investments and makes upstream oil and gas a major priority, according to a recent research note from Wood Mackenzie.

Read: Tax breaks and spending cuts: Here are the winners and losers in Trump's big bill

With such "dramatic" uncertainty facing new power-supply investments, retirements of thermal power plants are likely to be deferred, power prices will rise and large loads - which refer to power consumption by a single user, such as a data center - will be delayed, said David Brown, director of energy-transition research for Wood Mackenzie, in the note.

Without permitting reform, domestic technology innovation and new large-load tariffs - or specialized electricity rates for large energy consumers - the U.S. will "risk the edge it has in the global AI race," he said.

There is "no AI without energy," according to the International Energy Agency. While a typical AI-focused data center consumes as much electricity as 100,000 households, the largest ones currently under construction will require 20 times as much, the agency has said.

In an effort to address AI's need for power, Trump announced on July 15 more than $90 billion in AI and energy investments from the likes of Google $(GOOGL)$ $(GOOG)$, in data centers and infrastructure, and Blackstone Inc. (BX), in data centers and natural-gas plants.

"These facilities would definitely factor into power supply and prices in the coming years, but the degree to which is quite unclear until companies commence construction and indicate the exact sources of electricity for the new centers," Dan O'Brien, a senior analyst at Energy Innovation, a nonpartisan energy and climate-policy think tank, told MarketWatch on Friday.

Changing the energy landscape

Overall, the tax and spending law has big implications for the energy sector, particularly when it comes to rolling back the work the nation has done to make a shift toward clean energy. The law, in part, winds down many of the clean-energy tax incentives for businesses stemming from the Biden administration's Inflation Reduction Act, or IRA.

It's "brought a lot more uncertainty in the U.S. energy market, especially with regard to the expansion of U.S. renewables," said Michael Tamvakis, professor of commodity economics and finance at Bayes Business School, part of City St George's, University of London. "There was great hope that the IRA would bring a much-delayed growth in the renewables industry to allow the U.S. to catch up with other nations, whilst making its contribution to the global effort for carbon-emissions reduction."

The new tax and spending law 'confirms that there will be a rebalancing of energy-policy priorities back towards dispatchable sources of energy, mostly nuclear and fossil fuels.'Michael Tamvakis, Bayes Business School

Trump's tax and spending law "confirms that there will be a rebalancing of energy-policy priorities back towards dispatchable sources of energy, mostly nuclear and fossil fuels," Tamvakis told MarketWatch by email. The new law "clearly sets the scene for less or no growth in most renewables ... with more focus back on fossil fuels."

At the heart of the new law is "national security," said Tamvakis, as domestic energy resources such as oil (CL00) (CL.1) and natural gas (NG00) can be extracted with existing domestic technology, which has been "developed and fine-tuned" in the U.S.

Relying on "domestically produced fossil fuels is secure, and perhaps even cheaper in the short term," he noted. But "fossil fuels are exhaustible, become more expensive to explore and extract, and may ultimately force the U.S. to resort again to increased imports" - though probably not during the current administration.

Power generation and energy costs

In a report finalized in July, Energy Innovation, the energy- and climate-policy think tank, said the tax and spending law will "harm America by cutting new electricity capacity additions, increasing consumer power prices and reducing U.S. GDP and job growth."

The law will make it "more expensive to meet growing demand in the next five critical years in the global AI race, damaging U.S. industrial competitiveness," it added.

Energy Innovation's O'Brien, one of the authors of the report, said the think tank expects the law to "hamstring energy companies' efforts to bring new power plants to the grid to meet rising demand."

In the next decade, he said, that means 340 gigawatts less power-generation capacity brought online - or about one-third of what was expected to come online if not for the new law.

American households will start seeing energy price increases as soon as next year, as utilities "hike rates to make up for the upcoming shortage of cheap new power plants" that is expected because of the budget law, said O'Brien. Still, the increase will "take time to accrue, and the biggest increases in bills will take place over a longer period - the next five to10 years."

By 2030, American households are expected to see their annual energy bills increase $40 to $300, depending on where they are in the country, because of the law, he added. By 2035, the annual increase in bills would be $55 to $640.

Energy Innovation expects to see the highest increases in energy bills in the South and Midwest, with Missouri potentially seeing an annual rise of $640 by 2035, said O'Brien. The lowest increases would largely be in the Northeast and Pacific Northwest, with Washington state potentially seeing a $55 a year rise by 2035, he said.

Energy Innovation's analysis accounts for the tax and spending law's efforts to expand oil and natural-gas leasing and coal drilling and mining, as well as the new leasing subsidies offered to oil, according to O'Brien.

Including these efforts, "we see a relatively unsubstantial reduction in prices compared with the increase in prices caused by higher demand for these same products," he said.

In other words, the Trump administration's efforts to boost fossil fuels likely won't be able to offset the new law's impacts on U.S. power supplies - or reduce the prospect of higher energy costs.

-Myra P. Saefong

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July 19, 2025 08:00 ET (12:00 GMT)

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