Stalled demand for energy in Europe pushed investors away from renewables, but artificial intelligence could see cash flow back into the sector, while also uplifting fossil fuels.
Global electricity generation from renewables is expected to jump by 60% in 2030, accounting for 45% of total electricity output, per the International Energy Agency. Almost 50% of European power came from renewables in 2024, and the region has a strong pipeline of solar and on- and offshore wind waiting to be connected to the grid.
“The problem we have now is integrating all of that variable supply into our power markets,” Peter Osbaldstone, research director for European power and renewables at Wood Mackenzie, told CNBC.
Pressure on integration results in pressure on prices, “which undermines the economics of investments, which makes the whole process of supporting a decarbonized power mix more difficult, more expensive for governments to bear,” he said.
As AI-driven power demand grows, market watchers are eyeing fossil fuels to beat the energy bottleneck. The IEA revised its 2025-2030 growth forecast for renewables downward by 5% compared to 2024, reflecting the changing sentiment and policy, largely from the U.S.
Redeploying fossil fuel energy is a “short‑term crutch” that helps the AI roll-out get going, but “renewable energy is the only way to win in the long term,” Agate Freimane, partner at venture capital firm Norrsken, told CNBC’s “Europe Early Edition” on Jan. 8.
“China and the U.S. have both acknowledged the need for vast energy resources to power an AI future, and this is reflected in the adoption of renewables. Taking the global view — renewable energy prices have dropped by more than 90%, and in 2024, 91% of new renewable projects were cheaper than fossil alternatives,” Freimane said in a follow-up email.
“This shift triggers a self-reinforcing cycle: cheaper clean power accelerates electrification, rising electrification boosts demand for storage and grid intelligence, and those upgrades push the cost of clean energy even lower. In this way, it can be argued that AI is accelerating the shift to renewables,” she added.
Dealing with intermittency
For Alberto Faraco, a senior analyst who covers infrastructure at Morningstar DBRS, intermittency is still a fundamental issue with renewables. Investment needs to be made across the whole system — not just the energy-generating side, he told CNBC.
“Data centers should help the development of renewables, because that should push the price of electricity up, but transmission would need to be developed, battery storage would need to be developed,” he said, adding that renewables alone will not be enough to serve the stable needs of the data centers.
“Gas for the time being would be impossible to phase out,” said Faraco.
Nuclear energy is touted as a steady baseload option for renewables, but that doesn’t account for volatility in their supply and demand. Nuclear can’t be switched on and off when it’s needed, Faraco said. “Across all the fossil fuels, gas is the most efficient and the cleanest one,” he added.
This is part of the reason why Wood Mackenzie expects gas — considered a transition fuel by the European Union — to remain part of the energy mix up as far ahead as 2060.
“There is a call to be made at some point by governments: What do I do with gas generation?” Osbaldstone said. But ultimately, “the lights have got to stay on.”
To withdraw from fossil fuels in line with climate goals, energy storage must be ramped up. Battery costs have fallen 90% in less than 15 years, per a 2024 IEA report, and newer chemistries are being developed for long-duration storage.
The investment case is not clear-cut, however.
“If you’ve got that long-duration battery storage, its utilization in a typical year is going to be very low, because you’re not going to have that many opportunities to really deploy that asset,” Osbaldstone said, noting that their use depends on the weather.
There’s a price risk too, given operators don’t know how much they will pay or make from storing and selling energy. “As you add more batteries to the grid, this arbitrage margin may compress because there will be more batteries buying electricity at the low price and more batteries selling electricity at the higher prices,” Faraco said.
A ‘twin potential’
Supporters argue that AI could also serve as a critical enabler of smarter storage, allowing for better management.
“AI-driven data analytics could improve planning, project design and real-time operational decisions, resulting in reduced fuel consumption, lower CO2 emissions and extended asset lifetimes,” according to an IEA report.
The European Commission is betting on such gains across the whole energy system in what it has dubbed the “twin potential of energy for AI and AI for energy.”
The bloc’s forthcoming roadmap for digitalization and AI in the energy sector will “accelerate the uptake of digitalisation and AI in the energy sector while improving energy efficiency and system reliability,” a Commission spokesperson said when approached about a rollback of climate policy to fuel soaring electricity demand from AI and data centers.
“As AI rapidly advances, its potential to strengthen Europe’s energy resilience and accelerate the clean transition is becoming increasingly clear. At the same time, the growing electricity needs of AI technologies call for smart, forward-looking planning,” they said.
“The European Commission aims to ensure the EU is fully prepared to seize these opportunities while safeguarding the stability and reliability of Europe’s energy system.”
Agate echoed the “huge opportunity.”
“As it stands, there are several examples of companies using AI to improve energy systems — Vind AI revolutionising wind energy, Granular Energy enabling greater transparency, and Juna.ai in manufacturing,” she said, pointing to startups that Norrsken has invested in.
“Additionally, improving efficiency in heavy industry is one of the most powerful levers for emissions reduction. Heavy industry accounts for around a third of global energy consumption, and AI-driven optimisation is now pushing industrial efficiency forward by decades.”
