Closing the Generation Gap: Renewables and the Data Center Boom

The rapid growth of large cloud service providers, also known as hyperscalers, and the tech industry’s shift to power-hungry Graphic Processing Units (GPUs) are spurring a seismic shift in the way America consumes electricity. Thanks in large part to data centers, U.S. power demand is accelerating for the first time since 2007— and the grid is struggling to keep up. 

This sudden and critical need for new generation capacity is causing skyrocketing demand for wind and solar projects, which are fast to build and have high margins (the fuel is free). Alongside them, a whole new energy infrastructure sector has emerged: utility-scale battery storage. 

The capital needed over the next 5+ years to deliver this capacity will be massive—senior and subordinated debt, tax equity, sponsor equity—providing ample opportunities for nimble lenders who are experienced in the relevant structures.

The demand side 

• Over the past 10 years, U.S. electricity peak demand has been flat. The next five years are forecast to see growth of 4.7%—almost double previous forecasts of 2.6%.¹ 
• The U.S. has 16.8 GW of currently operational data centers and another 24.8 GW in development. Put in perspective, the entire state of Georgia’s peak electricity demand in 2023 was 17 GW. 
• The strongest growth is centered around data center “hotspot” areas such as Northern Virginia, Dallas, Silicon Valley and Phoenix, but secondary markets are also growing as developers seek access to power. 
• Tech has never been able to resist increases in processing power, and GPUs use 2–10x the power of CPUs—making new data centers much more power hungry than old ones. 
• Utility forecasts for data center demand remain conservative, suggesting significant upside to demand forecasts if even 25% of the current pipeline comes to fruition.
• While data center demand is one of the biggest growth drivers, it is not the only one: EVs and the electrification of office, manufacturing and industrial facilities also contribute.

The supply side 

• Wind and solar are the most popular new generation projects (by a wide scale) because of their proven technology, rapid construction and strong economics. 
• Utility-scale battery storage is a new but increasingly important component of solar projects, which raises both their price tag and their value to the grid. 
• Regulatory incentives favor energy transition projects over new fossil fuel generation. Attractive project economics, strong state-level support, and corporate preference for clean energy all help mitigate political risk. 
• Significant fossil fuel generation capacity is scheduled for decommissioning, which could further tighten supply. 
• Due to their intermittent nature, 4–8 MW of solar or wind capacity must be built (plus storage) for every 1 MW of new peak demand—and, for every 1 MW of fossil fuel capacity retired, 2–4 MW of new renewable capacity is needed. 
• The demand rise is sharp enough that any renaissance in baseload fossil fuel generation would not harm the energy transition outlook.