The Energy Bottleneck

America faces a critical constraint in its AI competition with China: energy infrastructure capacity. While tech giants announce hundreds of billions of dollars in AI investments, the harsh reality is that the United States lacks the electrical grid capacity to power its AI ambitions.

AI data center power demand is expected to grow thirtyfold by 2035, yet America’s largest grid operator, PJM Interconnection, does not have new capacity to meet new loads. The result is a ~seven year wait time for grid connections, forcing data centers to build their own power plants while electricity costs surge. Meanwhile, China added over 400 gigawatts of power capacity last year compared to just a few dozen gigawatts in the United States. No matter how much capital, talent, or technology America deploys in AI development, insufficient power capacity caps the entire sector’s growth potential.

This energy scarcity represents more government failure than market failure. Private capital should rush toward these enormous profit opportunities, but government-imposed barriers have prevented market solutions at the grid level. Regulations require private companies to navigate lengthy and complex approval and permitting processes before building power plants and selling electricity. Process applications are often delayed due to lack of clear mandates and coordination among permitting agencies, unclear timelines and guidelines, or insufficient staffing. Grid access control creates 5-7 year interconnection queues mostly through bureaucratic processes rather than mere engineering limitations. For example, projects that entered PJM’s queue between 2018 and 2020 are just now receiving interconnection agreements.

Private markets are not waiting for the queue to clear. Companies like Bloom Energy are selling generation that sits behind the meter entirely, bypassing the interconnection process rather than enduring it. Bloom's solid oxide fuel cells convert natural gas into electricity through an electrochemical reaction rather than combustion, and they deploy on site in months rather than the years an interconnection agreement takes. A data center that owns its own generation does not need PJM's permission to operate. This is a market solution surfacing despite the barrier, not because the barrier was removed. Bloom is positioned to benefit enormously from that dynamic. Its addressable market is a direct function of how long the queue stays broken — every year the backlog lengthens is another year of demand pushed toward on-site generation, and the incentives described above suggest the backlog is not clearing. But notice what the workaround does to the economics: the scarcity permitting created does not disappear; it moves. Instead of a regulated utility earning an approved rate of return, an unregulated equipment vendor captures the premium that scarcity commands. Government intervention did not stop the power from getting built. It changed who builds it, and where the profit lands.

Why doesn’t government simply remove these barriers? Because existing utilities and regulatory bureaucracies have interests in maintaining the current inefficient system, and because the government can bypass its own regulatory obstacles. The Department of Defense treats energy infrastructure as part of national security, justifying direct government intervention.

Once government frames energy infrastructure as a strategic emergency, normal market financing becomes inadequate. Goldman Sachs research estimates that about $720 billion of grid spending through 2030 may be needed just to support data center growth. Behind-the-meter generation routes around the queue, but it cannot build the queue. Transmission lines, substations, and interconnection remain a regulated monopoly no private buyer can bypass — and that is where the $720 billion sits. Given the red tape preventing private investment at that layer, this spending is likely to come from the government itself.

With the US government already running a ~$2 trillion annual deficit, policymakers face mounting fiscal pressure that will likely drive them toward monetary expansion – directly monetizing debt through Federal Reserve bond purchases – rather than pursuing the politically toxic alternative of substantial tax increases. This dynamic intensifies when nations confront strategic economic competition, such as our current battle with China over artificial intelligence buildout. History demonstrates that governments consistently choose monetary expansion and currency debasement over accepting diminished global influence, prioritizing short-term fiscal flexibility over long-term monetary stability.

Government-created problems lead to government-created solutions, which often create bigger problems:

1. Government regulations block private buildout of grid infrastructure.

2. Strategic competition creates urgency for bypassing normal market processes.

3. Massive government spending becomes "necessary" to solve the crisis.

4. Monetary expansion becomes probable to finance the spending.

5. Inflation emerges from monetary debasement, and government needs override sound money principles.

Understanding this progression is key for investment positioning. If government intervention and monetary expansion become responses to the energy infrastructure crisis, investors need protection against the resulting currency debasement. Hard assets that cannot be debased, such as Bitcoin and gold, become important components of portfolios.

The energy infrastructure crisis perfectly illustrates a central insight from Austrian economics: government creates the problems it claims only government can solve. Private markets could efficiently provide AI energy infrastructure if government removed regulatory barriers preventing competitive solutions. Instead, government chooses more intervention to solve problems created by past intervention, leading to monetary expansion and currency debasement. Each intervention creates distortions requiring bigger interventions until sound money itself gets abandoned.

The energy crisis isn't just about technology or Chinese competition. It's about the highly probable progression from regulatory capture to fiscal dominance to monetary debasement. Smart money positions on both sides of that progression. On one side, the companies selling the workaround — Bloom Energy foremost among them, monetizing a queue that shows no sign of clearing. On the other, the assets that hold value once the fiscal response arrives. The first position pays while government stays in the way. The second pays when government finally spends its way through. Both are consequences of the same failure, and there is no version of the next decade where neither one matters.

AI infrastructure buildout will be financed through the oldest government trick: printing money to pay for what taxation and honest borrowing cannot afford. Hard money and hard assets allow you to prepare accordingly.

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