Powering AI: How Do Data Centers Affect Renewable Energy Investment?

Alexander Heiss, Zacharias Sautner and Thomas Schmid
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Alexander Heiss: Technische Universität München (TUM) - TUM School of Management
Zacharias Sautner: University of Zurich - Department of Finance; Swiss Finance Institute; European Corporate Governance Institute (ECGI)
Thomas Schmid: The University of Hong Kong - Faculty of Business and Economics

No 26-29, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: 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.

Keywords: Data centers; Electricity demand; PPAs; Climate commitments; Renewable Energy (search for similar items in EconPapers)
Pages: 53 pages
Date: 2026-03
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