U.S. energy policy is about to enter another volatile phase

When it comes to energy, the blue wave in these midterms is perhaps better characterized as a crimson tide than a green upswell.

Energy issues were on the ballot mainly because of prices; never before had Americans been confronted with $4-plus average pump prices on Election Day, and they weren’t too happy about electricity costs either. Those prices intersected squarely with President Donald Trump since the energy shock is owed primarily to his unpopular war in Iran. Utility bills, meanwhile, have become bound up with one of his favored sectors, artificial intelligence.

As with so much else in these results, the motivating instinct on the energy front appears primarily to be rejection. What that indicates in terms of what America is for is less straightforward. Despite the wave, Democrats still don’t have a filibuster-proof Senate majority and they have made inroads in Republican strongholds including Texas, where talk of net-zero would likely put such gains in jeopardy.

As it is, Democrats had been pivoting toward addressing affordability, rather than emissions, even before the Iran war broke out. Republicans’ sweeping victory in 2024, and the subsequent gutting of former President Joe Biden’s green legislation, made climate a weak political platform on its own. Electricity inflation offered a new line of attack. Touting efforts to ease utility bills that just happened to encourage green energy made more sense. That framing is likely to continue.

None of this means Democrats have abandoned climate. It remains a core element of the party’s progressive wing — which had a very good night in states including Michigan, for example — and is a wedge issue against Republicans. And the sheer scale of the blue wave will likely embolden Democrats on several fronts.

The most immediate concerns permitting reform, with a bipartisan bill awaiting passage in the lame duck session. Democrats may now prefer to wait until January. One obvious concession to seek in striking a deal with a veto-wielding president is extending subsidies on solar and wind power. These are due to expire as part of the Trump tax cuts enacted last year but had, until then, been extended by Congress repeatedly.

Beyond Washington, Democrats’ strong showing at the state level has important implications, mainly because that is where much of what happens with utilities gets decided. As of this writing, Democrats had broken Republican trifectas — where one party holds the governor’s seat and both chambers of the state legislature — in at least four states, including the country’s biggest electricity market, Texas. Democrats also flipped several mixed states to blue trifectas, including Pennsylvania, the biggest market inside PJM, the largest U.S. power grid. This provides more room to preserve or enhance state-level clean energy standards.

These state-level shifts also carry big implications for AI and the data center boom.

One of the bigger bombshell victories on Tuesday, that of Democratic Governor-elect Gina Hinojosa in Texas, followed a campaign that successfully attacked the Republican incumbent for cozying up to hyperscalers. In Georgia, Democratic Governor-elect Keisha Lance Bottoms has called for a temporary pause on data centers, and Democrats also flipped control of that state’s utilities regulator for the first time in several decades. Even where moratoria aren’t enacted, tax rebates may be withdrawn or tighter clean-energy conditions imposed. Deeper red states, such as Florida and Louisiana, may welcome some hyperscaler refugees.

Overall, the existing momentum toward data center developers having to pay their associated grid costs, and shield households from the risks, has now reached warp speed, tempering the more ambitious projections of new capacity. Utility stocks traded higher on Wednesday, but with gains skewed toward bigger integrated utilities with more diversified exposure, such as NextEra Energy Inc., and away from the buzzier merchant generator names more closely tied to data centers, such as Constellation Energy Corp. Electrical equipment providers such as GE Vernova Inc. and Caterpillar Inc. also traded down sharply on the view that construction will slow.

A technology sector that botched the initial outreach to communities faces a new reality. The timing of OpenAI’s announcement of the "Grid Protectors Program," the day before the elections, perhaps owed more to human intuition than AI.

The biggest unknowns concern how the two parties internalize this political earthquake.

For Trump, the immediate question is whether he leans into areas where his executive powers remain strong, most notably the Iran and trade wars. If he doubles down on the former, fuel prices will stay high. Neither issue is a vote winner for Republicans, however, and those remaining in office must surely begin to look past Trump now that gaping fissures have opened up in his coalition (Vice President JD Vance seems to be there already). That could create room for compromise on energy issues, especially as Democratic Rep. Hakeem Jeffries, the likely next Speaker of the House, looks set to enjoy a majority big enough that he can probably afford to stay within his centrist comfort zone.

The much discussed "vibe shift" of 2024 has proven ephemeral. To what degree is not yet known, but it reopens possibilities, including in the energy field. That portends yet more volatility in U.S. policy around energy and climate, especially if Democrats go on to clinch a trifecta in two years’ time (these Senate wins help in that regard). They have witnessed Trump steamroll everything from foundational science to wind-project permits, often sidelining Congress and resorting to emergency powers and direct federal investment in companies. Any green policies that follow may take a leaf from his aggressive playbook rather than Biden’s more cautious one.

This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners. Liam Denning is a Bloomberg Opinion columnist covering energy. A former banker, he edited The Wall Street Journal’s Heard on the Street column and wrote the Financial Times’s Lex column.