N°26-29: Powering AI: How Do Data Centers Affect Renewable Energy Investment?

This paper examines how the AI revolution affects investment in electricity generation. Exploiting the public release of ChatGPT as a plausibly exogenous shock, we show that power plant investments increase substantially more in regions with data centers than in regions without them. In contrast to the common view that data center growth is primarily supported by gas-fired generation, most of the newly announced capacity comes from renewable power plants and battery storage. A key mechanism behind these effects is data centers' use of power purchase agreements, which enable project-financed renewable energy investments. Furthermore, net-zero climate commitments by hyperscalers act as additional catalysts for data center-related renewable energy investments. These findings suggest that the growing electricity demand from data centers does not necessarily undermine the net-zero transition.