- AI data center growth is slamming into grid limits
- A looming FERC decision could reshape who pays for grid upgrades and whether large-load customers get faster interconnection timelines.
- The stakes stretch far beyond Big Tech
Hyperscaler capex is poised to set records in 2026, as cloud giants scramble to build enough compute capacity to meet growing demand. Energy remains a key constraint – and point of public contention – but an upcoming regulatory decision is poised to offer either grief or relief.
There are two key energy issues: power generation and years-long interconnection queues, and how large-load customers like data centers impact other users on the grid. The Federal Energy Regulatory Commission is poised to act on both sometime this month.
It’s not yet clear what changes FERC will make to existing regulations. But in a Notice of Proposed Rulemaking issued in October, FERC said it was seeking input on rule changes that would speed interconnection study timelines to 60 days for customers that agree to flexibly curtail usage and whether large load customers should pay the full cost of any grid upgrades needed for their interconnection.
Unsurprisingly, the proceeding has generated reams of public comments (search for Docket RM26-4-000 here if you can’t wait for the Fourth of July for some fireworks).
Given the pace that data center operators are adding capacity, FERC’s decision could have enormous consequences, both for the companies and ratepayers.
Why regulators must move
Data from the Electric Power Research Institute (EPRI) shows data centers account for around 4-5% of U.S. electricity demand today. By 2035, that number is expected to hit 10-20%. But on the state level, data center demand has already surpassed the high end of that range, for instance hitting 25% of overall demand in Virginia. The figure in Virginia could hit 39-57% by 2030.
“By 2030, seven additional states—Oregon, Iowa, Nebraska, Nevada, Wyoming, Arizona, and Indiana—could see data centers exceeding a 20% share,” EPRI noted.
But while more large-load customers are connecting to the grid, regulations haven’t kept up. Mounting public backlash, driven by rising utility rates as well as concerns over noise and water use, has set the stage for a course correction.
As Morningstar DBRS pointed out in a recent note to investors, data centers are raising the stakes for energy regulation.
“Unlike gradual residential or commercial load growth, a single data center can add hundreds of megawatts of demand in a specific location, often requiring new generation supply, transmission upgrades, interconnection facilities, or reliability enhancements,” Morngstar’s team wrote. “Stronger electricity demand can be credit positive for utilities and independent power producers…but it also intensifies the importance of clear rules governing interconnection, cost responsibility and customer protection.”
Wrench in the gears
Failure to address public tensions and interconnection timelines could have massive consequences for data center operators and their planned expansions.
“Data centers may accelerate the need for new system investment, but the regulated utilities may also run into public and regulatory hurdles if residential and other existing customers are asked to bear costs primarily driven by new large-load users,” Morningstar observed.
And that could throw a huge wrench in the gears of what has become a massive, and rapidly-moving data center expansion machine. Here’s a rundown of just some publicly available expansion numbers (though not U.S. specific):
Amazon added around 4 gigawatts of capacity in the 12 months leading up to Q4 2025, with 1.2 GW added in Q4 alone. CEO Andy Jassy said at the time the 4 GW figure was “twice what we had in 2022,” adding Amazon planned to “double it again” by 2027.
Microsoft disclosed in its fiscal 2025 annual report it added over 2 GW of new capacity in the 12 months leading up to June 30, 2025. It subsequently added 1GW of capacity in its fiscal Q2 2026 (calendar Q4 2025) and another 1GW in its fiscal Q3 (calendar Q1 2026). CEO Satya Nadella said during its FQ3 earnings call it is on track to “double our overall footprint in just two years.”
CoreWeave ended 2025 with 850MW of live data center capacity and has said it’s on track to increase that amount to more than 1.7 GW by the end of 2026. In other words, it’s planning to add around a gigawatt of capacity this year.
And there’s a seemingly endless supply of capacity to be added.
Synergy Research Group noted in April that it’s known pipeline of hyperscale data center projects stood at nearly 800.
“Developments in infrastructure are simultaneously moving at light-speed relative to recent progress within infra, but are positively slovenly relative to demand. This is a well-documented challenge for data center developers since while power may not be the largest dollar cost, it is the gating item for data center revenue,” Generate Capital wrote in a recent report.