‘Grow At All Costs’: Data Center Firms Willing To Pay Far More For Power Amid AI Gold Rush

Plagued by increasingly acute power shortages amid an artificial intelligence arms race, data center developers and the world’s largest tech firms are willing to stomach far higher electricity costs than ever before — as much as twice their current spending, according to a new report. 

As data center developers and Big Tech tenants face 10-year wait times for electricity from utilities, many are willing to pay far more than they do today to get their hands on electricity, according to a survey published this week by financial services firm KPMG. 

More than half of the hyperscale tenants and data center developers surveyed by KPMG said they were willing to pay up to 50% more than their current expenditures on electricity costs. Even more were willing to incur those additional costs for low-carbon energy options, with 14% indicating a willingness to pay up to twice their current electricity expenses for greener power. 

The report’s authors say these results reflect a new “grow at all costs” era of data center development as tech giants scramble to build the infrastructure needed to support AI.

Power pricing, traditionally a top consideration in site selection for new data centers, is no longer a top priority, and firms are increasingly willing to deploy huge amounts of capital toward creative solutions — like producing their own power or joint ventures with utilities — to help them get whatever power they can as fast as possible.

“Without access to reliable energy, hyperscalers simply cannot scale the AI capabilities that will drive innovation and further economic growth,” Chad Seiler, KPMG's U.S. technology, media & telecommunications consulting leader, said in a statement. “This is not a problem that can wait — major tech players are ready and willing to put their capital behind solving this challenge head-on.”

The AI-driven data center building boom is expected to double the sector’s global electricity consumption over just five years, according to the International Energy Agency — effectively adding the equivalent power consumption of Sweden or Germany. 

The power pinch is only expected to become more acute as data center development outpaces the buildout of new power infrastructure. According to KPMG, 64% of hyperscalers and data center developers believe the current pace of energy deployment is not enough to meet energy demand caused by AI.

Data center firms’ willingness to pay far more for power has significant implications for the data center development landscape, said Reid Tucker, KPMG’s U.S. strategy and technology leader for infrastructure and capital projects.

Already, more data center projects are emerging in energy markets that until now were considered too expensive to be viable for data center development. Large-scale data centers have been announced in places like Southern California and Massachusetts, where data center development has been largely stagnant due to pricey power. 

The survey also suggests that data center firms will be able to stomach the large upfront fees mandated by a growing number of utilities in major data center markets as a condition for grid connections. Utilities like Duke Energy and AEP Ohio now require new data centers to pay for the majority of their anticipated electricity use upfront in an effort to help pay for needed grid upgrades. But Tucker said these added costs may not be enough to chase away hyperscalers desperate for more capacity. 

“Over a year ago we started seeing many hyperscalers adopt a ‘power first’ strategy, regardless of the power costs,” Tucker said in an email to Bisnow. “Though concern for cost remains a factor, it is lower on the priority list.”

Developers and hyperscalers are also willing to pay a premium for alternatives to grid power from utilities, from behind-the-meter deals with energy developers to generating their own power on-site. The tolerance for higher power costs has jump-started the adoption of on-site generation as existing technologies like hydrogen fuel cells that were previously too expensive for widespread commercial viability suddenly fall within the acceptable cost curve.

According to KPMG, data center developers are increasingly open to partnerships with utilities in which they would shoulder some of the cost of needed infrastructure upgrades through development joint ventures. But the data also points to an enthusiasm gap between both parties. Sixty-two percent of electric utilities surveyed by KPMG were interested in entering joint ventures to ensure secure energy compared to just 36% of hyperscalers and data center developers.

Still, Tucker says this kind of collaboration is going to be critical if the data center industry is going to successfully navigate its increasingly dire power crisis. 

“The increased complexity of energy sources and the infrastructure needed to deliver it will require significantly greater collaboration among energy suppliers, government agencies and data center developers,” Tucker said. “Those attempting to go at this alone will likely experience increased challenges and find themselves with unachievable plans, stranded assets and skyrocketing costs.”