Grid Uncertainty Reshapes Data Center Deals
With grid connection queues stretching for years, sophisticated parties are moving beyond fixed prices, using staged payments and financing conditionality to manage power uncertainty.
Soaring electricity demand from data centers, projected to more than double globally by 2030, is creating significant grid connection delays and uncertainty that are reshaping how development and M&A deals are structured. The primary challenge is the risk gap between a utility's 'accepted offer' for a connection and achieving an actual 'energised connection,' a process that can be derailed by years of delays and unforeseen infrastructure costs. Sophisticated investors and developers now manage this risk through evolving contractual mechanisms, including staged payments tied to grid milestones, financing contingent on firm connection dates, and energisation-based longstop dates. For counsel, this elevates the importance of deep diligence on connection offers to interrogate dates, cost allocation for grid reinforcements, and curtailment risks. Parties should monitor ongoing connection-queue reforms by regulators like FERC in the US and Ofgem in Great Britain, which could re-prioritize projects and alter development timelines.