Solar is booming in the United States as power demand surges, outpacing the growth of any other electricity source and disproving claims that the energy transition is a failure.

The energy transition from fossil fuels has faced substantial criticism from leaders in the oil and gas industry, who have argued that renewables still represent a fraction of power generation despite decades of investment. Renewables also face reliability problems, they say, when the sun is not shining or the wind not blowing.

To be sure, solar remains a small portion of total electricity generation in the U.S., standing at just 3.9% of the nation’s power mix in 2023 compared to the 43% share held by natural gas, according to the Energy Information Administration, the statistical unit within the Department of Energy.

And renewables face substantial logistical challenges in connecting to an aging power grid that is not prepared for the level of new demand the U.S. is facing after a long period of little growth.

But leaders in the clean energy industry argue that the sector is reaching a turning point, particularly as Big Tech firms such as Amazon and Microsoft seek clean energy to power data centers that are the backbone of the Internet and artificial intelligence applications. The economic argument for renewables has also strengthened, they say, as the price of solar modules and batteries has fallen.

“They are cheaper, they are clean and quite frankly easier to site, so the future is going to be renewable energy,” said Andrés Gluski, CEO of AES Corporation, a power company that has signed large power agreements with the likes of Alphabet’s Google unit and Amazon. AES operates both renewable and gas-powered plants.

Amazon, Microsoft, Meta Platforms and Google alone represented 40% of the demand for large, utility-scale solar projects in the U.S. over the past five years, according to a May research note from investment bank UBS. Renewable demand from these companies, which are all committed to 100% clean energy, is poised to climb — artificial intelligence requires 10 times more electricity than the typical Google search, according to UBS.

Solar is forecast to make up 58% of new electricity generation installed in the U.S. in 2024, according to an estimate from the Department of Energy. A record 36 gigawatts of solar is scheduled to be added to the grid this year, nearly double last year’s increase, while battery storage will more than double to 14.3 gigawatts.

Just 2.5 gigawatts of natural gas, by contrast, is expected to be installed in the U.S. in 2024, coming in at just 4% of the 62.8 gigawatts of total planned power additions and the lowest number in 25 years.

“We’re seeing this kind of surge in demand for clean power,” said Joseph Rand, energy policy researcher at Lawrence Berkeley National Laboratory. “We’ve seen the economics of wind and solar, for example, become very competitive and very attractive to the point where in many parts of the U.S., those are the cheapest forms that … can generate a unit of electricity.”

The U.S. is facing a historic wave of electricity demand. As geopolitical tensions encourage protectionism, manufacturing is moving back to the U.S. with the support of the CHIPS and Science Act, which aims to increase domestic semiconductor production, the building block of the digital economy.

Though electric vehicle adoption slowed at the end of 2023, a record 1.2 million car buyers went electric last year, 7.6% of the U.S. vehicle market — up from 5.9% in 2022, according to Kelley Blue Book.

And Big Tech is building out energy intensive data centers to support the artificial intelligence revolution. In 2023, data centers representing three gigawatt hours of electricity were under construction in the top eight U.S. markets, a 46% increase over 2022, according to real estate services firm CBRE.

As these trends collide, electricity demand could surge 20% by 2030 after more than a decade of stagnation, according to an April analysis by Wells Fargo. Data centers are expected to make up 8% of U.S. electricity consumption by the end of the decade — more than double their current share, Goldman Sachs said in April.

Explosive power demand poses a challenge to the Biden administration’s goal of converting the U.S. power grid to 100% clean electricity by 2035.

“The demand growth and the electrification is all kind of a Catch 22 because the more demand you have, the harder it is to decarbonize,” said Ryan Sweezey, principal analyst for North America power and renewables at the energy consulting firm Wood Mackenzie.

Natural gas producers are betting that they are better positioned than renewables to meet the demand, particularly from data centers. They argue that gas is cheap, abundant, quickly deployable and above all reliable. Though a fossil fuel, gas is also playing a role in the energy transition by displacing dirtier coal plants, according to the gas industry.

“The primary use of these data centers is big tech and I believe they’re beginning to recognize the role that natural gas and nuclear must play,” Richard Kinder, executive chairman of Kinder Morgan, one of the nation’s largest natural gas pipeline operators, told analysts on the company’s first quarter earnings call in April.

“They, like the rest of us, realize that the wind doesn’t blow all the time, the sun doesn’t shine all the time, that the use of batteries to overcome the shortfall is not practically or economically feasible,” Kinder said.

Saudi Aramco CEO Amin Nasser effectively declared the transition away from fossil fuels a failure during a March energy conference in Houston, saying wind and solar supply under 4% of the world’s energy. Two-thirds of emissions reductions in the U.S. were due to the transition to gas from coal, Nasser said.

Dan Shugar, the CEO of Nextracker, pushed back against the argument that natural gas will be the biggest beneficiary of data center power demand. Nextracker is a leading U.S. solar firm, building systems that allow panels to track to the position of the sun, improving the efficiency of solar power plants.

Shugar pointed to the massive number of renewable projects in the U.S. seeking connection to the power grid. Nearly 2,500 gigawatts of solar, wind and battery projects were requesting connection in 2023, almost double the entire installed capacity of the current U.S. power plant fleet, according to an analysis by Lawrence Berkeley National Laboratory.

There were just over 1,000 gigawatts of solar power seeking grid connection last year, nearly 14 times more than the 79 gigawatts of natural gas that is in the power queue, according to Lawrence Berkeley.

Solar demand is rising as the power source has become cost competitive with natural gas in areas. Solar for large utility projects costs $29 to $92 per megawatt hour of electricity, while combined cycle gas plants cost between $45 to $108, according to a June analysis by financial advisory firm Lazard.

The costs rise for solar with battery storage, however, to between $60 to $210 per megawatt hour, though tax credits under the Inflation Reduction Act can push those prices down to $38 to $171, the Lazard analysis found.

“There’ll be some gas, but we believe based especially on the data published by the DOE, the predominant energy source for these data centers is going to be renewable energy,” Nextracker’s Shugar told CNBC in an interview. The tech companies developing data centers have “very serious sustainability goals and don’t want their power coming from fossil,” the CEO said.

“The short story is we see data centers becoming an increasingly significant demand driver for renewables both from [an] aggregate demand standpoint as well as an environmentally preferred source of energy,” Shugar said.

The U.S. could achieve 90% clean electricity by 2035 if about 1,400 gigawatts of wind and solar capacity are deployed, according to a series of reports published by the University of California Berkeley’s Goldman School of Public Policy and GridLab.

While the current backlog of renewables would surpass that threshold, getting those projects authorized for connection to the grid and building out the physical transmission lines pose substantial challenges. Only 20% of projects seeking connection to the grid between 2000 and 2018 were actually completed, according to Lawrence Berkeley.

The rate by which renewables are deployed would need to at least triple to achieve 90% clean electricity over the next decade, said Amol Phadke, senior scientist at the Goldman School and Lawrence Berkeley.

But it is taking longer to build power plants after their initial application. For plants that came online in 2023, it took about five years from the initial application for grid connection until construction was finished, said Rand, the Lawrence Berkeley analyst. In 2008, it took just two years, he said.

The bottleneck for projects applying to connect to the grid should ease later this decade, said Sweezey, the Wood Mackenzie analyst. Building out transmission, on the other hand, is more challenging because the infrastructure requires complex permitting across multiple state, local and federal agencies, he said.

“It’s kind of a maze, a labyrinth of a process,” Sweezey said. “We need to start proactively planning to deliver large scale transmission lines” to demand centers, he said. Historically, most utilities haven’t done this type of planning, focusing instead on near-term reliability issues, the analyst said.

But executives at Fluence, one of the leading battery providers for utility-scale projects in the U.S., see the economics becoming more favorable as energy demand rises. Fluence was launched by AES Corporation and Siemens in 2018.

John Zahurancik, president of Fluence’s Americas region, said batteries are about 20 times cheaper than they were in the early 2000s. Batteries face a declining value curve in which each hour of storage is less valuable than the previous hour, Zahurancik said. But as energy demand increases, the value of each additional hour should rise, eventually making longer duration batteries more cost effective, he said.

“A lot of this is not so much a technology breakthrough needed, it’s been the economics of scale,” Zahuranick told CNBC. “We’ve been steadily driving costs out of systems that we’ve deployed.”

In California, for example, solar energy represented more than 50% of the state’s power supply from 7:45 a.m. until 5:25 p.m., peaking at about 18 gigawatts or 64% of supply around 1 p.m., according to Grid Status, which tracks major U.S. grids in real time. Batteries were a top three energy source from 7:25 p.m. until shortly before 9:20 p.m., peaking at about 6 gigawatts or 20% of supply at 8:25 p.m.

“You can do it 100% with renewables, you just need a whole lot more renewables,” AES CEO Gluski said of meeting power demand. “I do agree that we’re going to need natural gas to shore up … renewables until batteries become ubiquitous and cheap enough to make up for that,” he added.

AES has signed agreements to provide renewable power around the clock to some tech companies running data centers.

One example is an agreement AES signed with Google in 2021 to power its Virginia data center campus with 90% carbon-free energy on an hourly basis using wind, solar, hydro and battery storage resources.

While natural gas will act as a bridge fuel, the CEO said he’s not seeing tech companies, for example, asking for new fossil fuel plants to power data centers.

“All of them want to be part of an energy transition,” Gluski said. “I don’t see anybody saying build me gas and coal plants to power my data centers.”