Powering the data surge: Addressing the energy squeeze

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The race to scale digital infrastructure continues at an unprecedented pace. As data center campuses proliferate and edge facilities are upgraded to support the rise in digital traffic, the industry is facing an intrinsic concern — power, especially at a time when energy prices continue to surge.

Data centers are among the most energy-intensive operations, consuming 183 terawatt hours (TWh) of electricity in 2024 just in the US, more than 4% of the country’s total electricity consumption. By 2030, the demand is expected to more than double.

As the digital infrastructure industry races to meet surging demand, energy supply has become a limiting factor. Further, the sheer cost of projects often means that traditional financing channels may often not be sufficient, requiring boards to rethink long-term capital allocation for power purchase agreements. Private credit and infrastructure capital are often needed to fund the power generation projects needed to operate data centers.

Overcoming this challenge necessitates a multi-stakeholder collaboration to ensure that both existing and future data centers have the power needed to run smoothly, while still prioritizing energy security across the US for both commercial and private consumers.

What is causing the constraints on power generation for data centers?

Several factors are contributing to the misalignment between data centers’ energy requirements and utilities’ production ability, with the key issues being:

Timeline mismatch. The market is facing a temporal tension — while developers can build a data center facility in 12 to 18 months, required grid updates that enable reliable front-of-the-meter power delivery often take between five and seven years to complete. That timing gap often leaves data center developers with two options: delay launch until there is sufficient utility capacity or pursue alternative power generation options. Each choice, however, carries potential costs related to capital, workforce logistics, and heightened operational risks.
Behind-the-meter power challenges. The need for speed-to-market has some data center developers turning to other power supply options, including on-site generation, to meet immediate needs. While islanded power can provide increased control over timelines, generation source, and amount of available power, it can significantly impact a data center’s cost and risk profile. A major pain point is the loss of the grid as a dependable fallback, which means that any failure of an on-site or third-party generator can grind a data center to a halt. Even a short outage can have immediate and severe repercussions, given data centers’ uptime expectations, many of which require “five nines”; running 99.999% of the time allows for 5.26 minutes of downtime a year. Further, power generating assets require deep expertise to ensure the asset is constructed and operated in a safe and reliable manner. Many data center owners/operators looking to own their generation assets lack the required knowledge to identify challenges early and address them before they escalate.
Supply chain strains. Equipment bottlenecks have been a persistent challenge for years, but have intensified with the acute rise in demand. Manufacturers face multi-year backlogs for turbines and other critical components. While some suppliers are looking to expand capacity, lead times remain long. This pressure is driving creative workarounds, including repurposing existing turbines and refurbishing equipment, which can introduce technical and longevity risks. These initiatives may also complicate underwriting assessments, as insurers are faced with equipment with which they are unfamiliar.
Labor shortages. Scaling generation and grid work requires skilled construction, commissioning, and maintenance teams. The industry is competing for a limited pool of knowledgeable and reputable engineering, procurement, and construction (EPC) and operations and maintenance (O&M) professionals familiar with power generation. The ability to contract quality professionals could further bottleneck the development of energy infrastructure, and increase the chance of build or operational defects. Further, the digital infrastructure sector faces another potentially significant challenge — relocating skilled professionals to locations where data centers and associated power generating assets are being built.
Regulatory constraints. Regulated utilities may need to balance the needs of large industrial offtakers with the need to continue providing service to residential and commercial customers. Utilities and regulators are often reluctant to shift capacity or rate structures that could raise consumer bills, which have been increasing consistently for the past few years. Regulatory prudence often limits how fast front-of-meter capacity can be directed to new data center loads, and utilities continue to focus on maintaining reliable power for all customers across the board.

Power is a leading question for digital infrastructure. Providing reliable, resilient, and sustainable energy can require a coordinated, cross-sector approach rooted in sound risk management, shared accountability, and a commitment to long-term operating standards.

At the same time, it is important for insurers to continue to innovate to address the evolving landscape. This might involve developing more capacity, bespoke risk-sharing structures, and clearer methods to quantify risk accumulations.

Report

Powering the data surge: Addressing the energy squeeze

The race to scale digital infrastructure continues at an unprecedented pace. As data center campuses proliferate and edge facilities are upgraded to support the rise in digital traffic, the industry is facing an intrinsic concern — power, especially at a time when energy prices continue to surge.

4 actions to address power generation challenges

Conduct early and thorough analysis of energy needs

Rebalance contracts and shared accountability

Invest in workforce and supply chain resilience

Revisit risk transfer and insurance models

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Powering the data surge: Addressing the energy squeeze

The race to scale digital infrastructure continues at an unprecedented pace. As data center campuses proliferate and edge facilities are upgraded to support the rise in digital traffic, the industry is facing an intrinsic concern — power, especially at a time when energy prices continue to surge.

4 actions to address power generation challenges

Conduct early and thorough analysis of energy needs

Rebalance contracts and shared accountability

Invest in workforce and supply chain resilience

Revisit risk transfer and insurance models

Contact us

Related insights

100 largest losses in the hydrocarbon industry 1974 -2025

Risk in Context Podcast: Risk and insurance considerations for small nuclear technologies

Powered by Marsh FINPRO: Unlocking the future of carbon credits

Energy in the room: Insights from Marsh Risk’s North American Energy Industry Conference