Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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US imposes AI data centre tax as power prices run wild
Ole Hansen
Head of Commodity Strategy
Summary: With tech giants sucking up power supplies for their new AI data centres, utility bills skyrocket and an outraged public demands action.
The AI revolution is a power-hungry one. The tech giants see that current electricity supply falls far short of what is required to power the massive new AI data centres they hope to build. They are already taking dramatic steps to secure stable, long-term power sources. Microsoft has contracted with Constellation Energy to reopen one of the old nuclear reactors at Three Mile Island. Google and Amazon are striking deals with US utilities and other providers to create small modular nuclear reactors (SMRs) for their planned AI data centres. But these are all long-term projects - for 2030 and beyond in the case of the latter two. What about the energy needs right here and now, as the AI arms race reaches new white-hot intensity already in 2025?
In 2025, US power prices spike higher in several populated US areas, as the largest tech companies scramble to lock in baseload electricity supplies for their precious AI data centres. This inspires popular outrage, as households see their utility bills skyrocket, aggravated by the huge spikes in power prices for electricity consumed at home during peak load periods in the evening. In response, many local authorities move in to protect political constituents, slapping huge taxes and even fines on the largest data centres in a move to subsidise lower power prices for households. The taxes incentivise investment in massive new solar farms with load balancing battery packs, but also dozens of new natural gas-driven power stations, even as the demand for ever more power continues to rise faster than supply. Rising power prices drive a new inflationary impulse.
Potential market impact: A massive boom in US investment in power infrastructure. Companies like Fluor rise on signing massive new construction deals. Tesla’s accelerating Megapack gets increasing attention. Long-term US natural gas prices more than double, a significant contributor to a more inflationary outlook.
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