Despite incredible demand for new data centers, many proposed projects aren’t being built. Siting issues, community opposition, and difficulty procuring equipment and power all play into the problem.
By one estimate, there are 5-10 times more data centers applying to interconnect to the US grid than will ever be built.
“There are currently very long lead times to secure power,” said Holt Bradshaw, principal consultant at Siemens PTI. “In the competitive data center world, the three to five years it can take to obtain a large gas turbine, build transmission and upgrade substations is often too long. Developers are turning to smaller, more available equipment, buying from offshore utilities, and using temporary power solutions.”
As a result, data center developers find themselves preoccupied with energy costs and availability as they try to site projects. And unfortunately, many are not well-versed in the complexities of the electric grid and power markets.
“They often do not understand how long it takes to establish a grid interconnection and are unaware of the environmental constraints that may prevent them from using certain forms of generation,” Bradshaw said. “When it comes to on-site power, they may not understand that choosing generation equipment is only part of ensuring energy reliability. There are other elements ranging from reliability in internal grids to access to dependable fuel sources.”
Here are some ways data center developers can overcome energy hurdles and boost their prospects for success.
- Be aware of local grid constraints
Certain portions of the electric grid are more prepared to serve data centers than others. Identifying ideal development locations requires information and understanding of a range of variables, including the grid’s capacity to deliver additional electricity across regions, utility service territories and even down to the community level. Energy experts can help developers identify the most grid-friendly locations through their granular understanding of the grid and its operators — utilities, regional transmission operators, and independent system operators.
- Understand local rules and incentives for on-site power options
Given interconnection delays, many data center developers seek alternative ways to secure supply. Some turn to on-site power, such as microgrids that include both generation and energy storage. However, as Bradshaw points out, local and state regulations and incentives have a significant impact on what can be built in any given jurisdiction and its associated costs. The XAI data center hub in Memphis, Tennessee, stands as an example. The 421-MW project is facing scrutiny from environmental advocacy groups, which say it is installing more gas turbines than permitted.
- De-risk grid investments for utilities
Data center operators and utilities often struggle to align because utilities plan under longer timeframes. Utilities make decisions based on demand forecasts and infrastructure needs 20 to 30 years into the future, which means they must maximize their certainty that grid investment plans are right-sized to serve all ratepayers at costs public service commissions will accept. Data centers can help utilities achieve certainty by signing contracts or guarantees that reduce the risk of upgrades to serve their proposed load or even partnering with the utility to co-own infrastructure, thereby sharing risks and rewards.
- Make sure the utility knows the project is real
In a 2024 Electric Power Research Institute survey of 25 U.S. utilities, every utility surveyed reported facing challenges in incorporating data centers into its load forecasts due to the speculative nature of some interconnection requests. The utilities stated that they screen data center interconnection requests to determine the likelihood that the data center will be built. Projects score higher if a developer is experienced and the request comes from an existing customer. Utilities also give preference to publicly announced data centers that have secured land and permits. Essentially, utilities don’t want to waste their limited resources on “phantom load” if they don’t have to. So developers can significantly improve the likelihood that utilities dedicate resources to their requests — and thereby shorten delays — by checking the boxes utilities use to evaluate them.
Getting data center developments across the finish line requires an in-depth understanding of energy technology and operations, utility requirements and ratepayer concerns, power pricing and markets, and risk and its mitigants. A knowledgeable partner can help developers and operators secure a grid connection, screen sites, access financing, choose equipment, interact with utilities and grid operators, and find the right balance between onsite and grid-produced power
