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Protecting power investments during the data center boom

Protecting power investments during the data center boom with trade credit insurance, surety guarantees, and letters of credit to manage non-payment risk.

07/13/2026 · 5 minute read

The buildout of digital infrastructure is gathering pace. Massive data center campuses are expanding while edge facilities are getting major upgrades just to keep pace with growing digital traffic. The result is an insatiable demand for power.

For utilities and independent power producers, this surge can be a massive commercial opportunity. But it can also create substantial risks and underscores the importance of protecting capital when entering into very large long-term power supply arrangements.

The conflict: Long-term commitments built on shorter-term assumptions

Data centers have quickly become among the most energy-intensive forms of commercial infrastructure. Even though efficiency gains are reducing the amount of power required for each AI task, overall global data center energy consumption is still expected to more than double, increasing from about 415 terawatt hours in 2024 to 945 terawatt hours by 2030.

Meeting that demand means that energy providers may have to pour capital into expanding their generation capacity and upgrading transmission grids.

One of the main challenges is that the technology used by data centers is changing quickly. Greater efficiency could mean that future power requirements are materially lower than currently projected. That may create a difficult dynamic for power providers. Most power purchase agreements run for 15 years, with some spanning for as long as 25 years, during which time the power provider expects to recoup their capital investment. But data center tenant commitments are typically much shorter.

This mismatch in time horizons can leave energy providers exposed to the risk of stranded assets — facilities that become underutilized long before the investment has paid for itself.

For regulated utilities, a contract failure can quickly create difficult situations that require deciding who ultimately bears the cost of unpaid investments. Passing stranded costs on to ratepayers or absorbing them at the shareholder level are likely to be unpopular options. Independent power producers with smaller balance sheets may face even more direct financial repercussions.

This reality raises an important question for utilities and independent power producers: How can they participate in the data center boom without leaving their balance sheets exposed if the underlying economics change?

Traditional solutions provide critical protection

In many cases, utilities and grid operators require financial guarantees when a data center connects to the grid or enters into a long-term power purchase agreement. Those protections can be particularly important during construction and in the early years of a power purchase agreement, when the power provider may be taking on substantial obligations before the arrangement has fully matured. The goal is to reduce the risk of default — whether that means failing to offtake the agreed-upon power over the term and/or to pay for that power — and help safeguard capital invested in interconnection, transmission upgrades, generation assets, and other long-term commitments.

Traditionally, letters of credit have been the standard form of security in these arrangements because they are familiar, widely viewed as liquid, and reliable. Surety guarantees issued by insurance companies are also being used more frequently, particularly when developers want to avoid tying up large amounts of capital in collateral while still providing enforceable protection backed by highly rated insurers.

Surety guarantees are typically used to support a specific contractual obligation. A data center developer, owner, or operator may arrange a surety guarantee to secure an interconnection commitment or payment-related requirement under a long-term power purchase agreement. If that obligation is not met, the guarantee gives the beneficiary a defined source of recourse. This can make surety particularly useful in situations where the objective is to secure a clearly defined obligation while preserving liquidity for the party providing the guarantee.

Letters of credit can serve a similar purpose and may still be preferred in some transactions, depending on the counterparty, the market, or the structure of the transaction.

In cases where a data center developer or operator wishes to utilize available surety capacity, but the grid operator, utility, or independent power provider will only accept a letter of credit issued by a bank, a bank-fronted solution can be utilized. 

The role of trade credit insurance

For many energy and power providers, the gigawatt-scale commitments tied to digital infrastructure build-outs is unlike anything they have historically carried on their balance sheets. This is why many organizations require multiple insurance instruments to effectively cover their risks throughout the lifecycle of their contract.

Trade credit insurance addresses the exposure and risk of non-payment by the data center in a different way, helping to protect the provider’s own balance sheet against the loss of an unexpected revenue stream. In this case, the utility or independent power producer purchases insurance to protect itself against the counterparty exposure created by the agreement. If the customer defaults or can no longer support the contracted obligation, the policy can help backstop the resulting non-payment exposure. This can be particularly important in cases where the provider has already committed substantial capital to build generation, transmission, or other infrastructure and is relying on years of contract performance to recover that investment.

This, however, does not mean that trade credit insurance is intended to replace other forms of protection. In many situations, both solutions are explored and evaluated, and trade credit insurance can work alongside surety, letters of credit, and other credit tools used to cover payment risk. The key is understanding what each product is designed to do and building an insurance program that provides the most optimal levels of protection.

Building a large-scale solution

Considering the sheer size of these contracts, with some data center-related power investments running into billions of dollars, protections often need to be layered across multiple markets and products rather than sourced through a single line of capacity. This reality, again, underscores the importance of designing a structure that meaningfully protects providers, lenders, and other stakeholders.

Building an adequate program begins with a careful assessment of how much capital is truly at risk and what protections are already in place. The next step is to determine how much cover is needed to satisfy the relevant stakeholders. Getting this analysis right matters — if the structure is too narrow, it may not solve the underlying problem; if it is too broad, the insured may end up paying for unnecessary coverage that does not reflect the actual exposure.

This is where specialist advice can really make a difference. Utilities and independent power producers do not just need access to insurance capacity but often also need help quantifying their risk, understanding how different products interact, and which structure is most appropriate for their transaction. The answer may differ depending on the nature of the concern — whether related to interconnection exposure, a specific contractual default, long-term non-payment risk, lender expectations, or broader balance sheet protection.

Even while capacity remains available, this is finite and is not always fully available in a single market or product line. This makes it increasingly important to think in terms of an insurance toolkit rather than a single solution that addresses all risks.

Marsh specialists have developed programs designed to address these kinds of exposures, including a recent placement that combined multiple forms of credit protection to address an exposure exceeding US$5 billion.

This risk could not be addressed with an off-the-shelf solution and required a detailed assessment of the underlying risk, determining the level of protection that made sense, and the development of a layered structure capable of supporting a very large and long-term exposure.

Such placements show that even risks of this scale can be managed with the right insurance structure. And as data center buildouts continue to grow, and power contracts become larger, credit solutions can play an important role in protecting the capital at stake when a long-term commitment evolves, weakens, or disappears over time. 

Contact us for more information on how trade credit insurance can protect against the risk of non-payment

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Our people

Joe Meaney

US Energy & Power Specialty Lines Leader

  • United States

Philip Neighorn

Global Accounts Leader & Surety Placement Leader

  • United States

Katie Burke

US Specialty Energy & Power Growth Leader

  • United States

Julien Vignal

Placement Leader Digital Infrastructure, Data Centers & Energy

  • United States

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