A New Role for Batteries in the AI Energy Crisis

This essay was originally published in DailyWealth Trader, a daily trading advisory, and has been adapted. To learn more about this service, click here.

In 2025, data centers made up half of new electricity demand in the U.S.

That's more than the residential, industrial, or transportation sectors. And data centers are only going to need more energy as AI takes off. But we can't rely on traditional fuels alone to meet AI's energy demands...

Instead, batteries are going to be a major player to fill this demand gap.

Battery-storage systems capture and store energy from renewable sources like solar and wind... then release the power when it's needed most. For example, developers are already leaning on lithium-ion batteries for today's cellphones and electric vehicles.

In the long run, they will help make clean-energy sources like solar more reliable. But today, we're seeing another boost in battery demand.

You see, it's not just clean-energy sources that need batteries. Gas-powered data centers are using them now, too. And as we'll explain, that will be a major tailwind for the battery-storage sector moving forward...

Until recently, battery-storage costs were extremely high relative to other energy sources...

In 2015, it cost around $1,000 per megawatt-hour ("MWh"), compared with less than $200 per MWh for other energy sources like gas, coal, solar, and nuclear. Some energy sources even cost less than $100 per MWh.

Back then, the cost to invest in battery storage was way too high to spark innovation.

Now, though, it has dropped below $100 per MWh. That makes it cheaper than other traditional fuels. And that cost will keep falling as tech improves.

Take a look at how battery-storage costs have fallen since roughly 2015...

Using batteries for storage is now so cheap that companies can't ignore it. That's a boon for clean energy.

And according to a recent Bloomberg article, batteries are now helping gas-powered data centers, too. Check it out...

BloombergNEF has tracked 4.9 gigawatts of energy storage announcements that are co-located with on-site fossil fuel generation at data centers. That's about 32% of announced global on-site data center battery capacity.

The sites include some of the largest AI data center complexes under development, such as Elon Musk's Colossus supercomputer in Memphis, Tennessee, and the combo has become so popular that companies such as Caterpillar Inc. and GE Vernova Inc. have announced products or partnerships pairing energy storage with gas generation.

Many data centers are running gas turbines for shorter periods and using batteries to support the rest of their power needs. These batteries can provide quick and reliable power.

That's important when a data center wants to ramp up computing tasks... which require a lot more energy. Batteries are there to provide the extra juice.

The need for battery storage won't go away anytime soon, either. It takes four years on average for data centers to connect to the grid. So in the meantime, many are turning to this combination of gas and battery usage.

According to Bloomberg, more and more companies are announcing plans for battery storage to support gas-powered data centers over the next couple of years.

You can see this in the chart below...

In short, battery-storage demand isn't just coming from the clean-energy revolution anymore.

We still see the major clean-energy shift as a big tailwind for batteries. But as data centers catch onto battery storage, there's even more reason to be bullish on the sector.

Years ago, battery storage was too expensive for a lot of companies to use. Now, it's so cheap that even gas-powered data centers are adding it to the mix.

Don't sit on the sidelines while this trend takes off.

Good investing,

Chris Igou

Editor's note: Last night, Marc Chaikin, founder of our corporate affiliate Chaikin Analytics, went on camera with a Silicon Valley insider to issue a dire warning. A major bottleneck is slowing the AI build-out – and putting pressure on the market's biggest winners. But they also revealed how this shift could create a powerful new opportunity tied to the next phase of AI.