[co-author: Jordyn Flaherty]
Across the United States, data center development appears unstoppable, driven by the exponential growth of AI workloads and the supporting infrastructure required to sustain its operations, in particular electrification. US data center power demand is projected to almost triple from 50 GW in 2024 to approximately 134.4 GW by 2030, indicating the continued astronomical growth of digital infrastructure across the country. As of 2024, data center facilities tend to rely on natural gas sources, which supply approximately 41% of their electricity. Of the remaining share, 24% comes from renewables led by solar and wind, 20% from nuclear energy, and 15% from coal power plants. As demand for data centers accelerates, developers must determine how to power their facilities while implementing sustainable and reliable energy strategies.
From the outset, long before any servers and GPUs are installed, the physical location and structural design of a data center project shape whether it is feasible and bankable. A project’s physical components, such as structural design and site layout, must align with supportive electrical and water infrastructure, which determine a facility’s ability to support high-density power and cooling systems. The need for supporting infrastructure, in particular power supply, drives negotiations among developers, EPC contractors, utilities, local and state governments, and other stakeholders whose participation and collaboration is necessary to establish fully operational data centers. As a result, this is an area where some of the most significant risks, along with new opportunities for commercial, financial, and legal solutions, are emerging.
Building a Power Supply
Digital infrastructure requires a vast store of electricity. According to the International Energy Agency, hyperscale data centers — massive facilities that support the large-scale workloads of technologies like AI and automation — consume on average 100 MW or more of power, with an annual demand equivalent to around 400,000 electric cars. In several US states, data centers make up more than 10% of total electricity consumption, placing a significant strain on regional grids. In Virginia, the epicenter of American data center development, data centers account for more than 25% of electricity consumption.
Meeting these power demands requires digital infrastructure developers to navigate a complex and evolving legal landscape to structure facility-specific solutions. One option is for facilities to source their electricity from the existing grid. However, contracting with a local utility for grid-supplied power often involves protracted negotiations over rates, interconnection timelines, and capacity availability. To reduce reliance on constrained grids, developers have turned to a diverse set of approaches for building their own energy sources. Through behind-the-meter (BTM) power purchase agreements, electricity is supplied directly from a co-located generation facility, frequently powered by renewable resources. While attractive, these arrangements depend on early site allocation, introduce default and termination risk, and often require the integration of co-located energy storage to ensure reliability.
Another option is the build-transfer agreement (BTA), in which a project developer constructs new generation assets that they initially own and which are later transferred to the data center operator. BTAs offer a faster and more customizable path to securing dedicated power but are capital-intensive and create considerable construction, regulatory, and performance risk, particularly for the data center developer.
A third option is the virtual power purchase agreement, which enables data centers to “buy” renewable energy without the seller physically supplying power, giving developers access to renewable energy credits (RECs) at the state level in addition to federal tax credits.
Conclusion
As data centers evolve, the path from concept to operation has become increasingly complex. Power is now a determining factor that shapes where data centers can be built and how quickly they can come online. In addition to securing project sites and constructing data center facilities, sponsors and developers must navigate electricity procurement and the regulatory landscape and ensure the bankability of their projects. To succeed in this landscape, sponsors and developers need legal advisors experienced in helping clients meet these challenges.
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