George Phillips
Senior Vice President | Energy Practice Leader
The digital infrastructure economy is experiencing significant growth, driven by increasing demand for AI capabilities and cloud services. By 2030, global investment in digital infrastructure is expected to reach an estimated $3 trillion, with thousands of new data centers coming online. In the U.S. alone, data center growth is projected to add approximately 50 gigawatts (GW) of electricity demand by 2030.
However, this rapid expansion brings substantial challenges—particularly in managing data center energy risk and ensuring reliable power delivery.
The increasing energy risk in data centers
Data centers operate on compressed build timelines of 18 to 24 months, but the power infrastructure needed to support them often takes 3 to 5 years or more to permit, build, and connect. Utilities face capital intensity, supply chain constraints, labor shortages, and regulatory hurdles, all compounded by an aging grid. This mismatch between data center energy demand and power supply availability creates a significant risk gap across the ecosystem.
Key pressures contributing to data center energy risk include:
- Timelines: Data centers expect rapid build-outs, but utilities need longer to develop power infrastructure. This often results in data centers being ready before power is available.
- Capital deployment: Developers invest quickly in near-term projects, while utilities follow longer investment cycles with regulated cost recovery, leading to exposure when power delivery is delayed.
- Supply chain constraints: Delays in critical equipment like transformers and turbines affect both developers and utilities, delaying project completion.
- Labor shortages: Skilled labor shortages slow construction and grid expansion efforts.
- Contractual misalignments: Service level agreements (SLAs) and power delivery commitments may not align with evolving system conditions, which can trigger penalties or disputes.
- Renewables integration: While renewable energy sources are essential for sustainability, they add complexity, cost, and regulatory risk to power delivery.
Why managing data center energy risk matters
Energy risk directly impacts data center operations and costs. Delays in power availability can stall data center openings, resulting in revenue losses that can reach up to $1 million per day. Additionally, fluctuating data center energy costs and infrastructure vulnerabilities can disrupt service reliability and increase operational expenses. As data centers increasingly rely on renewable energy to meet sustainability goals, integrating these sources without compromising reliability presents a significant challenge.
Strategies to mitigate data center energy risk
Effectively managing data center energy risk requires early and collaborative engagement between utilities and data center developers. Here are key strategies to reduce exposure and ensure reliable power delivery:
1. Early utility engagement: Utilities should be involved early in the development process to validate infrastructure requirements, pressure-test timelines, and design energy strategies that balance renewables with firm power. Early collaboration helps align expectations and reduce costly adjustments later.
2. Diversified, resilient energy mix: Utilities should deploy a mix of energy sources—solar, natural gas, and others—to bring power online faster and maintain project momentum. Each source has trade-offs: solar can be deployed quickly but poses redundancy challenges, while natural gas scales capacity but faces supply constraints. Coordinating across multiple sources enhances reliability.
3. System redundancy by design: Data centers require multiple independent power sources and pathways to ensure uptime. This means designing substations, backup power, and energy connections with redundancy in mind, while accounting for real-world constraints like equipment availability and replacement timelines.
4. Scaling capacity through partnerships: Delivering power at scale demands a full ecosystem of developers, contractors, equipment suppliers, capital partners, and municipalities working together. Utilities must also scale their internal workforce and infrastructure to keep pace with data center growth.
5. Aligning commitments with delivery realities: SLAs and contracts should reflect realistic interconnection timelines, permitting processes, and system capacity. Building flexibility into agreements helps reduce penalties and disputes caused by misaligned assumptions.
Real-world risks highlight the urgency
- Timeline mismatches: One data center developer secured an interconnection queue spot years in advance but faced a power delivery timeline much longer than their 18- to 24-month construction schedule. This mismatch shifted pressure and potential penalties onto the utility.
- Supply chain volatility: A utility’s turbine purchase price surged by tens of millions mid-procurement due to market dynamics influenced by hyperscale customers, illustrating how supply chain shifts can rapidly alter infrastructure costs and capital assumptions.
- Cost of delay: Delays in data center operations can cost operators and tenants up to $1 million per day, underscoring the financial stakes tied to energy risk.
Securing your data center’s future
Effective risk management in the data center ecosystem involves identifying operational challenges early to prevent contractual and financial exposures to utilities and other stakeholders. This includes evaluating project assumptions, service agreements, and delivery timelines to uncover misalignments before they become embedded in contracts or financing.
Additionally, employing risk-transfer strategies informed by engineering insights helps determine appropriate coverage. It guides contract structures and stakeholder coordination to balance risk, avoid unnecessary costs, and protect project performance throughout the project lifecycle.
To explore these insights in detail, download our full report, Powering Digital Infrastructure: Managing Energy Risk in the Data Center Economy, and learn how Marsh McLennan Agency can help you assess and manage data center risk.
