Beyond ‘clean’ versus ‘cheap’: The energy and growth strategy that states and regions are missing

For the first time in decades, electricity demand is rising significantly in the U.S. But the nation’s inability to build and connect enough new supply is driving sharp price increases (a major factor in last year’s gubernatorial elections) and raising the specter of shortages. Among the variety of factors that work to grow state and regional economies, energy has suddenly gone from an invisible input—poorly understood outside the power sector—to an urgent concern.

The response across regions and states, however, has been incoherent. They remain mired in a false choice between clean or cheap energy, rather than converging on a clean and abundant energy model, even though technological progress has made it possible. A key reason is that energy policy and economic development strategy remain disconnected. Energy policy treats the composition of a state’s economy and the capabilities of industries as fixed, ignoring that the point of economic development is to change what the economy does and how. Economic development, meanwhile, treats energy as a commodity input—a cost to minimize—rather than as a strategic lever for industrial transformation.

The result is that most states either accommodate energy-intensive industries with fossil fuel expansion or opt out of the competition for these industries because they are unwilling to build the necessary clean energy infrastructure. Neither is a winning strategy. The former locks states into a potentially very expensive multidecade commitment to the last generation of infrastructure. The latter almost inevitably leads to more expensive energy and less economic growth, and thus less support for climate policies. Both approaches reveal a pessimism about the potential of technology. Both are failing to seize the energy crisis as an opportunity to build new clean-tech industries that could solve local problems and more global ones. Both are failing to envision how existing industries could be equipped to operate far more efficiently.

Given the lack of clear, sustained federal direction, the question now is whether states can prove what technology has made possible: Policies that accelerate the energy transition can be an engine of growth, not an impediment to it, if those policies are paired with the right economic development capacity. For now, few states seem inclined to seize this opportunity.

Over the past two years, we’ve worked with and interviewed dozens of economic development practitioners, utility executives and regulators, investors, philanthropic leaders, and policymakers across a wide range of states and regions. Ideology does not appear to be the main impediment to a clean and abundant energy strategy. Rather, decisionmakers and constituents—taxpayers, ratepayers, and others—regardless of political orientation, underestimate the speed and scale of the technological transformation underway. That underestimation is both the cause and effect of missing institutional capacity: States that don’t see what’s technologically possible don’t build the capacity to act on it, and states that lack the capacity can’t see what’s possible. Meeting this moment requires a different mental model as well as a new operating model—one that enables the co-evolution of the economy and the energy system around a shared vision for inclusive growth.

The critical technological shifts reshaping the energy system landscape

Four major technological shifts are reshaping the landscape for energy planners, policymakers, and economic development actors alike.

Shift #1: The cost and reliability revolution

Clean energy technologies are essentially built from the same components as digital technologies, and are therefore progressing along similar learning curves that yield exponential improvements.

Each round of hardware and software development drives learning, innovation, and economies of scale that push costs down to the point that these technologies become too cheap to contain. This production-innovation cycle can flourish in many places, not just those endowed with fossil resources. Fossil fuels, in contrast, face a different dynamic: Maintaining or increasing output means constantly replacing depleted reserves with new, harder-to-reach, and therefore more expensive and contested sources (not to mention dealing with volatile commodity prices as global conflicts and other forces shock the market). Efficiency gains in extraction only have a marginal impact on that trend.

In simple terms, over time, the more oil we pump, the costlier it becomes—whereas the more solar panels and wind turbines we build and install, the cheaper they get. The all-in cost of combined cycle gas generation in the U.S. has decreased just 5% since 2009, despite the shale boom that took off in the 2010s. Meanwhile, onshore wind and utility-scale solar costs have dropped 55% and 84%, respectively, during this period, and have been cost-competitive with or more affordable than fossil fuels for years.

That cost reality is now showing up unmistakably in the market. In 2024, clean energy sources (solar, wind, and batteries) accounted for more than 90% of the nation’s new generating capacity for the first time—a share U.S. Energy Information Administration projects will hold even as total new clean energy capacity is expected to surge 59% to 86 gigawatts in 2026. The rollback of clean energy subsidies is unlikely to substantially reverse this trend, as natural gas generation—favored by the Trump administration and exempt from the recent push in some states to constrain renewables—face multiyear supply chain bottlenecks, from turbines to transformers and other essential hardware.

This cost dynamic extends beyond energy generation to consumption as well. Heat pumps, for example, which extract ambient heat from the air rather than burning fuel, were once viable only in mild climates. But dramatic advances in efficiency and cold-weather performance have made them cost-effective even in northern regions, often delivering positive financial returns within just a few years—especially when replacing oil, propane, or electric-resistance systems. Maine, for example, has been a top adopter.

Battery technology and deployment have followed a similar trajectory. The cost of lithium-ion batteries dropped 93% in real terms between 2010 and 2025, driven by scaling, improved chemistries, and manufacturing learning curves, in China and other nations. (Additionally, advances in alternative battery composition are well underway, mitigating concerns about overreliance on lithium or any one raw material.) These declines have made batteries increasingly practical for both grid-scale energy storage—smoothing energy delivered by intermittent renewables and stabilizing systems during peak demand—and an expanding range of consumer and industrial products. California, with its plentiful solar generation, large population, and summer spikes in demand for air conditioning, has already been a major beneficiary, with batteries now providing a quarter of peak load electricity. Texas, governed by very different political forces at the state level, has followed the same path, for the same market- and technology-driven reasons. Its grid operator nearly doubled its battery capacity between 2023 and 2025—second only to California in installed capacity, but adding more new capacity than any other state.

Shift #2: From a centralized to a distributed system

A structural shift in the energy system is colliding with a governance model built for a different era. Most regulations and utility business practices still assume a one-way flow of power—from large, centralized plants to passive customers that have relatively fixed needs. But technology has enabled a multidirectional and more flexible network. Distributed generation, storage, and flexible loads now allow everyday users to act as grid resources—power producers and demand reducers—and not just consumers. A business with rooftop solar can export excess electricity during the day and use now widely available tools to run certain operations—for example, manufacturing production schedules—at off-peak times, when energy is cheaper. Similarly, homeowners with batteries can store cheap overnight power for evening use.

If coordinated at scale, these assets, known as distributed energy resources (DERs), can function like a new kind of power plant. The Department of Energy’s (DOE) 2023 Pathways to Commercial Liftoff report finds that virtual power plants—networks of distributed assets such as electric vehicles, residential and industrial batteries, and smart thermostats orchestrated to operate as a single grid resource—could meet roughly 10% to 20% of peak demand by 2030, while saving the grid around $10 billion annually in avoided generation buildout, deferred infrastructure investments, and reduced “peaker plant” (inefficient, high-emitting gas generators used only during peak demand) operations. With large generation and transmission projects facing long lead times, distributed resources also offer a practical advantage: They can sidestep certain stubborn permitting and siting constraints.

Shift #3: The flexibility and efficiency imperative

While the shift to a distributed system changes where energy resources are located, the immediate crisis of demand growth and capacity constraint also requires a revolution in the timing and amount of energy use. For most of the year (and by design), the grid has plenty of headroom; the real challenge, which sets both the size and cost of the system, is a relatively small number of peak or “tight” hours when demand spikes and reserves narrow. As overall demand rises, those peaks are growing faster than we can expand supply and delivery, given supply chain delays, permitting hurdles, and long interconnection queues for new generation and battery storage. Even with cost improvements in clean energy, we cannot build traditional infrastructure fast enough to keep pace, and risk building costly infrastructure that isn’t actually needed. A recent analysis commissioned by the Utilize Coalition—a new industry group that includes Google, Tesla, and Carrier—estimated that better use of the capacity already in service through demand flexibility, storage, grid-enhancing technologies, and smarter interconnection could cut U.S. customer bills by $110 billion to $170 billion over the next decade. In this context, energy efficiency and demand flexibility together become the critical bridge to needed capacity for keeping costs under control and climate objectives in reach.

The economic case is clear: Flexibility, or shifting energy use away from times of peak demand, is significantly cheaper than building new infrastructure. In the Pathways to Commercial Liftoff report, the DOE found that managing available flexible demand could save the grid nearly $13 billion per year by 2030, with procurements of peak capacity from flexible resources costing about half of that from conventional natural gas peaker plans or utility-scale batteries. And researchers at Duke University estimated that U.S. power systems could bring nearly 100 gigawatts of new large data center and manufacturing loads (equal to the average annual total demand of California, Texas, New York, and Florida combined), onto today’s grid if they curtailed their energy use for just a few peak hours per year.

The implication is that demand-side energy management functions less as a series of disparate “green” programs, but as a core pillar of industrial strategy. It requires policies that reward efficiency as a capacity resource and market structures that compensate flexibility at its true value to the grid. Economic development incentives for large load projects, for example, might be tied to an operation’s ability and willingness to be a “good actor” on a capacity-constrained grid. System-level thinking also expands the solution set: Rewiring America found that installing heat pumps in select households that currently rely on inefficient heating, cooling, and water heating could free up enough capacity to meet roughly a third of projected energy-intensive AI data center demand through 2029. In many places, it could be cheaper—and more beneficial to local communities—for data center operators and utilities to free up capacity this way than to invest in new generation.

Shift #4: The economic potential of the electric tech stack

Taken together, these shifts do more than reshape the electricity sector—they appear to be pulling the broader economy toward a new, common technological foundation, and in doing so, beginning to establish a new basis for regional economic competitiveness. As electricity becomes cheaper at the margin, more controllable in real time, and increasingly embedded in smart buildings, transportation, and industrial systems, more products start to look like variations on the same underlying machine: electrified, sensor-rich, and software-managed.

That convergence is increasingly organized around what has been dubbed the electric tech stack: a small set of modular building blocks—batteries, electric motors and magnets, power electronics, and embedded compute—that are becoming ubiquitous across industries and infrastructure. Because the stack is modular, progress in one domain diffuses quickly into others: The same power electronics, semiconductors, and software appear in everything from factory automation to electric vehicle charging and electric drivetrains; miniaturization of efficient processors, batteries, cameras, and sensors developed for smartphones provides the building blocks for drones; and energy storage architectures proven in electric vehicles now anchor grid-scale storage.

For regions across the country, the implication is worth taking seriously. The electric tech stack underscores that electrification is about more than achieving clean energy and emissions goals—it is a platform for growth across the broader economy. Places that can deploy and integrate these technologies at scale—alongside the financing, workforce, and delivery capacity to go from piloting to adoption at scale—will be better positioned to lower energy-related costs, modernize industrial systems, and attract investment. Importantly, this does not necessarily require becoming an innovation or manufacturing hub; the modularity of the stack means that regions can benefit from deploying and integrating technologies developed elsewhere.

But each place will face a practical question: Whether it can weave these capabilities into the real economy quickly enough to relieve constraints, raise productivity, and capture the spillovers—new firms, new services, and new middle-skill jobs—that follow from large-scale buildout and adoption. Later, we’ll examine how a handful of states are starting to prove this is possible. But first, it’s worth understanding why most places can’t yet seize the opportunity, and what’s blocking them.

Why status quo systems cannot unlock the energy abundance that economic growth requires

The energy transition won’t just involve plugging the grid into solar farms instead of coal plants. It must involve actively working to adapt the economy industry-by-industry and neighborhood-by-neighborhood. The economy needs to both adapt to inevitable energy constraints in the near term while also accelerating the innovation needed to achieve energy abundance over the medium to long term.

Unfortunately, our systems aren’t wired for that. Across the country, climate policy, energy market governance, economic development, and environmental regulation operate in separate silos, with little to no alignment between disparate state priorities and specific regional economic realities. There are no mechanisms to ensure that state climate and energy policies are designed to leverage regional assets or achieve regional goals, or vice versa. Why don’t these mechanisms exist?

Ideologically driven policy differences offer one obvious answer. Energy policy under the Trump administration, at least to its critics, appears to be guided less by economic strategy than by loyalty to fossil fuels, and the same is true in many Republican-led states. Conversely, as Ezra Klein, Derek Thompson, Marc Dunkelman and other advocates for “abundance liberalism” have recently observed, in many Democrat-led states, there is a deeper commitment to long-guarded procedures, such as environmental review, than to outcomes such as reducing carbon emissions, reducing costs to the consumer, or growing new jobs in a cleaner economy.

But the deeper problem is systemic and institutional, not ideological. One reason is that energy constraints are such a new phenomenon. We’re emerging from decades of efficiency improvements that have blunted the impact of new energy needs for years. But U.S. electricity demand is expected to grow at a rate of 2% annually from 2024 to 2026—the first such rise since the mid-2000s. And it could accelerate: Some projections suggest 25% or more by 2030, though estimates vary widely. Data center buildout now drives the headlines, with some new AI campuses hosting server farms for hyperscalers such as Amazon, Google, Meta, and Microsoft consuming 1 gigawatt or more of power—comparable to a city the size of San Francisco. But there’s more to demand growth than expected use of energy-hungry AI: Domestic manufacturing, electric vehicle adoption, building electrification, and industrial decarbonization are also adding unprecedented pressure to the grid. The result: Energy availability has gone from background input to decisive factor, climbing from eighth to first among corporate site selection priorities between 2019 and 2025.

Meanwhile, the entities that manage how energy is produced and moved to consumers—regulators, utilities, and regional transmission organizations—are struggling to respond strategically under rules and assumptions from a different era. When new infrastructure truly is needed, they cannot build and connect it fast enough: cost-competitive generation sits in yearslong interconnection queues. And when new infrastructure isn’t actually needed, they often build it anyway, adding capital costs to ratepayer bills rather than first increasing the utilization of the billions of grid assets already in service.

Another reason is that managing a distributed energy system requires relationships and capabilities that traditional energy institutions were never built to provide. Turning millions of independent devices into a reliable system resource requires new market rules, compensation mechanisms, data standards, and operating practices, alongside software and automation to coordinate participation in real time. Realizing these benefits will require reformed regulations, new intermediaries, financing mechanisms, and partnerships that help firms and households adopt these technologies in ways that reflect their unique economic conditions and development patterns. AI-enabled control systems and advanced software will be essential to making that orchestration feasible—transforming a chaotic web of solar panels, electric vehicles, and batteries into a synchronized, dependable capacity resource.

Utilities whose business models favor large-scale capital investments and regulators with tools designed for centralized generation cannot yet effectively engage thousands of distributed actors as economic participants. Novel approaches such as virtual power plants have been trapped in what the DOE has called “many years of collecting data with pilots that—despite their success—have yet to scale up,” rather than being deployed at scale. Alternative regulatory models exist; for example, the United Kingdom’s RIIO (Revenue = Incentives + Innovation + Outputs) framework rewards utilities for innovation and outcomes rather than capital spending. But no U.S. state has adopted such an alternative model at scale.

Institutions built for yesterday’s energy system are a significant source of inertia and, sadly, a missed opportunity today. State policies that require clean energy generation and building electrification, for example, aren’t paired with commensurate investments in grid infrastructure and streamlined interconnection, so gigawatts of cost-competitive clean energy sit in queues while capacity prices spike. Programs remain fragmented—a virtual power plant pilot here, efficiency rebates there—never reaching transformational scale. Economic developers recruit businesses without a process to consider whether their economic impact is worth the amount of suddenly scarce energy they will consume—a dynamic playing out as states and municipalities hotly contest the value they bring to local communities. Policymakers enacting blanket moratoria on data center construction—an understandable response to real concerns—are foreclosing the potential for large loads to become flexible grid assets and large ratepayers that help spread fixed grid costs or fund improvements, lowering bills for other customers.

As demand pressure on a straining power system rises, frustrated critics blame obvious “villains” such as regional grid operators, or place their hopes in technological breakthroughs such as small modular nuclear reactors, the timelines for which remain uncertain. The result is expensive, slow progress satisfying neither economic nor environmental objectives.

Aligning energy and environment strategies to grow the economy

States and regions that want to benefit from the electrotech revolution (or even just protect existing industries and communities from energy shortages and rising costs) must recognize that market forces alone will not solve our emerging energy capacity and affordability crisis. Market forces may have worked to make batteries unbelievably cheap compared to a decade ago, for example, but they will not get batteries onto the grid at the speed and scale required, nor reshape how industries, buildings, and communities use energy around them. This is particularly true in the face of federal pullback from energy innovation, which is targeting not only solar and wind generation but also energy efficiency, storage, grid modernization, and transmission upgrades—measures that are essential to lowering costs and ensuring reliable power. Every region now faces the same bind: We can produce abundant clean energy in theory, but we cannot build or connect it fast enough in practice.

Models for breaking out of this bind do exist. Leading states, in partnership with cities and regions, share some combination of the three institutional capacities outlined below and expanded on in the following sections.

• Dedicated institutions that bridge innovation and deployment—entities that can deploy capital, invest in startups, facilitate demonstration projects and market transformation efforts, and build the workforce the energy transition requires.
• Market structures that let clean energy compete—rules that allow clean energy, storage, and distributed resources to interconnect and get compensated at their actual value to the grid.
• Energy strategy aligned to economic goals—mechanisms that connect energy planning to economic development, and leverage climate policy as industrial strategy, not regulatory compliance.

Dedicated institutions for innovation and deployment

New York, for example, has paired ambitious climate regulations with aggressive public investment. It has deployed the New York State Energy Research and Development Authority (NYSERDA), which was created in the wake of the 1970s energy crisis, as both project developer and financier. Programs such as Build-Ready pre-permit sites for clean energy projects—treating renewable infrastructure with the same strategic preparation typically given to industrial parks. Since its launch in 2013, the New York Green Bank has committed more than $2 billion in capital to finance clean energy and energy-efficiency projects, ranging from community solar and building retrofits to electric vehicle infrastructure, often in ways that enlist New York-based startups to test products and scale production.

The Massachusetts Clean Energy Center (MassCEC) stands out as an institution that takes a comprehensive and highly integrated approach to development and deployment. It provides direct equity investments in startups, runs demonstration projects to prove new technologies, coordinates with utilities to scale successful pilots into statewide incentive programs, and funds a wide range of workforce development efforts. The organization was created in 2009 following the Great Recession, and today operates with an $80 million annual budget, funded in part by utility ratepayers, which generates dividends by linking innovation, production, and adoption to fuel system modernization, energy efficiency and cost reduction, and economic development and job creation.

Competitive market structures

New York, Massachusetts, and other left-leaning states, many of which have higher-than-average electricity costs, also have much to learn from Texas. Rooted in a long tradition of energy independence and market competition, Texas is continuing its massive renewable energy expansion while experimenting with new policies to responsibly and effectively bring new large loads such as data centers onto the grid. Colorado has required its largest utility to let independent aggregators enroll customer-owned batteries, smart thermostats, and electric vehicle chargers, and dispatch them as grid capacity during peak demand. The effect is to create a competitive market for flexible energy resources that already exist in homes and businesses, rather than waiting for new power plants to be built.

Linking energy and economic strategy

While New York, Massachusetts, and Texas made foundational choices decades ago that have positioned them for this moment, most states lack these institutional or policy advantages for the energy-economy nexus. But this doesn’t mean that they’re starting from scratch. Across the country, states and regions are working, often in fits and starts, to build the capacity and coordination mechanisms this moment demands.

In Illinois, for example, a coalition of public and private sector leaders are devising a plan to preserve the environmental benefits of the 2021 Climate and Equitable Jobs Act, the implementation of which has lagged its ambitions, and the 2025 Clean and Reliable Grid Affordability Act, which gives the state new tools for distributed generation and storage, while ensuring that the state has enough clean energy and transmission infrastructure for Chicagoland’s burgeoning quantum computing sector. And in California, leaders are acknowledging that regulation alone cannot deliver climate goals when it drives up costs and erodes political support, and are calling for economic development institutions with the scale to match the state’s climate ambitions—treating the energy transition as industrial strategy and linking those goals to public concerns and business complaints about unaffordable costs, rather than environmental compliance alone.

Pennsylvania, though it has reaped significant economic returns from the fracking-driven boom in shale extraction, is beginning to look beyond its substantial natural gas resources for its long-term economic competitiveness. A new Energy, Data Center, and Artificial Intelligence Roadmap for the state calls for renewables, storage, and grid modernization alongside existing generation and pipeline infrastructure—acknowledging that advanced computing competitiveness requires more than cheap commodity fuel.

Virginia is translating that alignment into statute under unusual pressure. Northern Virginia is the world’s largest data center hub, and the state needs enough grid headroom to keep serving that industry and support new growth sectors while keeping electricity costs in check. Earlier this year, Virginia enacted first-of-its-kind, bipartisan legislation requiring its utilities to report how fully they are using existing grid infrastructure, and giving regulators authority to weigh those metrics when reviewing new capital spending.

Unlocking clean energy abundance can lead to affordability and growth

Clean versus cheap is a false binary, and that paradigm is no longer defensible or sustainable. Thankfully, a workable model for linking energy abundance to inclusive growth is starting to emerge. States and regions are showing that the most critical constraints are not technology or ideology, but governance: the institutions, incentives, and delivery capacity needed to translate clean energy progress into affordable and reliable electricity, competitive industries, and broad-based growth. As such, unlocking abundance now depends on building capacity in two parallel tracks—physical (generation, transmission, interconnection) and institutional (permitting, finance, market rules, implementation)—so that falling technology costs translate into real-world affordability and growth.

The core challenge, as this report has underscored, is a coordination gap. Conventional energy planning proceeds without economic vision. Economic development proceeds without energy accounting. And climate ambition, if not paired with the investments in deployment, workforce, and infrastructure needed to back it up, becomes a drag on the growth it should be enabling. Closing that gap is what distinguishes the states making progress—whether through dedicated institutions such as NYSERDA and MassCEC, market structures such as those in Texas, and emerging coalitions such as those in Illinois and Pennsylvania—from those still treating goals around energy, economy, and environment as incompatible or only loosely related. They are not.

To be sure, the transition we have road-mapped, like all major transitions, will not come without tradeoffs. In the near term, for example, there are powerful interests behind the continued buildout of large-scale, traditional power plants and the jobs such construction creates. But the stakes are rising—and with them, the room to articulate interests and forge coalitions in new ways.

Federal pullback from energy innovation programs and mounting affordability pressures will tempt many places into short-term, status quo fixes rather than investing in the institutional capacity and embracing the technological shifts that this moment demands. The states and regions that move quickly to align energy systems, economic development, and climate strategy around a shared vision for inclusive growth will be the ones that bring affordability pressures under control—and, over time, find a competitive edge in electrotech. In some regions and states, the “climate” part may be debated as weather-related risk reduction and resilience, if that’s how progress gets framed, and there is bipartisan interest in that from coast to coast, especially as bond and insurance markets send increasingly clear and powerful signals.

Whatever the terms of debate, the slow movers risk seeing rising costs erode public support for the very investments needed to expand power supply, make it more flexible and resilient, and in so doing build a platform for the new energy economy.