Will Power Build Out Meet AI Data Center Demand?

The Big Insight

The supply-demand debate is asking the wrong question. Both sides are partially right because they're measuring different bottlenecks.

DeVries is correct that generation capacity announcements likely exceed realistic demand—Report 8 shows 110 GW of firm utility commitments against projected demand of 95 GW by 2030. But the shortage camp is also right: PJM's capacity auctions hitting price caps two years running (Report 5) and interconnection queues exploding to 2,600 GW with only 13% ever reaching operation (Report 6) reveal that the constraint isn't generation—it's the grid itself.

The mechanism creating apparent contradiction: Data centers can be built in 18 months, but the transmission and interconnection infrastructure to serve them takes 4-12 years (Report 6). Forward energy curves stay flat (DeVries' evidence) because they price marginal generation costs, not the locational delivery constraints that actually bind. You can have abundant generation and acute shortages simultaneously—if the wires can't get the power where it's needed.

---

Key Opportunities

1. The Queue Arbitrage Is Real—But Not Where Most Look

Report 3 shows ERCOT and MISO offer 12-18 month queues versus PJM's 4+ years. Yet Report 8 reveals Texas forward curves are flat at $57-62/MWh through 2030 despite 156 GW of proposed data center load (Report 6). The implication: Texas is where capacity will actually get built, while PJM's premium prices reflect constraints that can't be quickly resolved.

The asymmetric opportunity: Developers who can navigate ERCOT's faster permitting capture both construction timeline advantages and premium offtake pricing from hyperscalers desperate to escape PJM's 7-year wait times. Report 1 notes ERCOT's 2-year permitting edge already attracts modular builders.

2. "Firm" Commitments Aren't Firm

DeVries counts 140 GW in utility commitments (Report 8), but Report 3 documents 80-90% historical withdrawal rates from interconnection queues. Report 6 confirms only 13% of 2000-2019 interconnection requests reached commercial operation. The gulf between announcements and reality is 5-7x.

This suggests the oversupply thesis depends on utilities successfully executing at rates 3-4x their historical performance. That's the hidden assumption driving DeVries' math—and the assumption most likely to break.

3. PJM's Capacity Market Dysfunction Is a Feature, Not a Bug

Report 5 shows PJM's 2027/28 auction fell 6,623 MW short of reliability requirements—the first time the entire RTO missed its target. But this creates windfall economics: Constellation earned $2.2B from 17,950 MW; Vistra took $1.3B.

The strategic insight: Existing nuclear and gas fleet owners in PJM are capturing scarcity rents that will persist through 2030 because new generation faces 4+ year interconnection delays. This isn't a market that will self-correct quickly. Incumbents win; new entrants wait.

4. Behind-the-Meter Is the Real Trend, Not the Side Story

Report 4 notes 33% of developers now plan fully onsite-powered campuses by 2030. Report 6 confirms hyperscalers are pursuing co-location, direct utility negotiations, and ownership stakes in generation infrastructure. Google stated its "strong preference is grid-connected load"—but also acknowledged co-location is now necessary (Report 6).

This signals the data center buildout will increasingly bypass traditional utility service entirely. The demand forecasts embedded in utility IRPs may be double-counting load that will never materialize on their systems.

---

Strategic Recommendations

For Investors

Focus on the bottleneck, not the commodity. Transformer manufacturers, high-voltage equipment suppliers, and grid enhancement technology providers face multi-year backlogs (Report 4 shows 2-4 year lead times). These are the choke points where pricing power concentrates.

Avoid the temptation to short utilities based on oversupply narratives. Report 5's capacity auction data shows PJM incumbents capturing $120,147/MW-year—22% above prior auctions—precisely because new entry is blocked by the constraints DeVries' analysis doesn't fully account for.

For Hyperscalers

The research uniformly suggests site control and interconnection queue position are now more valuable than the land itself. Report 3 notes PJM's "first-ready, first-served" reforms explicitly favor projects demonstrating site control and financing. The queue is the moat.

Report 1 shows co-location with retiring coal/gas plants offers queue-jumping via transferred interconnection rights. Cleco's 240 MW clean repower at retired Dolet Hills (Report 2) demonstrates the playbook.

For Utilities

The IRP data in Report 2 shows 259 GW of wind/solar and 103 GW of gas planned through 2035—but also 24% upward load forecast revisions in just the past year. The real risk isn't building too much; it's building the wrong type in the wrong place.

Report 2's Virginia SB 718 mandates evaluation of grid-enhancing technology before new transmission—signaling regulatory preference for optimization over expansion. Utilities betting heavily on new transmission may find approvals slower than expected.

For Policymakers

Report 6 documents that FERC Order 2023's "first-ready" reforms show mixed results because they address the study process, not the physical capacity deficit. The research suggests permitting reform matters more than queue management reform.

Report 4 notes building regional transmission lines requires 7-11 years for permitting alone. No amount of queue optimization solves a 7-year permitting timeline.

---

Watch Out For

Demand Forecast Uncertainty Is Massive—In Both Directions

Report 7 shows data center electricity projections ranging from 200 TWh to over 1,050 TWh by 2030—a 5x variance. Report 8's DeVries emphasizes that ChatGPT uses just 2 GW despite hype. But Report 7 also notes forecasters have raised projections multiple times in two years, and utility forecasts "may be overstated because many proposed projects never reach completion."

The uncertainty cuts both ways: AI adoption curves could disappoint, or efficiency breakthroughs (Report 7 mentions chip cooling and algorithm improvements) could dramatically reduce per-query power consumption.

FEOC Rules and Tariffs Create Near-Term Supply Chain Chaos

Report 4 documents new tariffs averaging 350-670% on solar imports from Southeast Asia, with additional investigations into India, Laos, and Indonesia. Non-Chinese battery and panel supply cannot meet demand. This creates 6-18 month delays for affected projects.

The implication: 2026-2027 renewables additions will likely miss targets regardless of demand, widening any potential gap. This is the near-term risk the longer-term oversupply narrative ignores.

Private Credit Risk in Tier-2 Operators

Report 8 notes DeVries' concern that private credit hype (e.g., PIMCO's Meta deals) erodes covenants for tier-2 operators like QTS and CoreWeave. If the oversupply thesis proves correct, these operators face stranded asset risk without the balance sheet strength of hyperscalers.

---

Questions to Explore

1. What's the conversion rate from firm utility commitments to actual operations? DeVries' 110 GW supply figure depends on utilities' definitions of "firm"—but Report 3's 80-90% historical withdrawal rates suggest this deserves scrutiny.

2. How are hyperscalers actually contracting? Report 8 mentions data centers pay $95/MWh at Vistra's Comanche Peak deal, far above market forwards. What portion of data center load is contracted at these premiums versus exposed to market prices?

3. What's the realistic SMR timeline? Reports 1, 2, and 8 all mention small modular reactors as potential firm capacity, but Report 8 notes Vogtle's 10-year delays and cost overruns (14B→32B) as deterrents. Are SMRs actually in utility plans or just mentioned for optionality?

4. How elastic is data center demand to power costs? Report 6 notes 20% pricing premiums in power-constrained markets. At what price point do hyperscalers defer or relocate projects?

5. What's happening in secondary markets? The research focuses heavily on PJM and ERCOT. Report 1 mentions MISO and SPP offer faster queues—but there's limited data on whether demand is actually shifting to these regions.

---

Strongest Arguments: Both Sides

The Adequate Supply Case (DeVries/Bull)

• 110 GW firm commitments vs. 95 GW projected demand through 2030 (Report 8)
• Flat Texas forward curves ($57-62/MWh through 2030) despite 156 GW proposals (Report 8)
• 362 GW net generation additions nationally versus ~250 GW demand growth (Report 2)
• 1.82 TW in interconnection queues—even at 20% completion, that's 360 GW (Report 3)
• Historical data center efficiency improvements have repeatedly beaten demand forecasts (Report 7)

The Shortage Case (Bear)

• PJM capacity auctions hit price caps two consecutive years, missing reliability targets (Report 5)
• Only 13% of interconnection requests (2000-2019) reached commercial operation (Report 6)
• 18-month data center builds vs. 4-12 year grid connection times creates structural mismatch (Report 6)
• Transformer lead times of 2-4 years can't be accelerated (Report 4)
• Northern Virginia faces 7+ year grid connection waits—the world's largest data center market (Report 6)

The Reconciliation

Both can be simultaneously true because they're measuring different systems. Generation capacity may be adequate or oversupplied. Transmission and interconnection infrastructure is clearly constrained. The DeVries thesis works if you believe data centers will distribute geographically to chase available grid capacity. The shortage thesis works if you believe data centers must concentrate in existing hubs (Northern Virginia, Dallas) for latency, fiber, and labor market reasons.

The answer likely lands in the middle: chronic regional shortages in premium locations, with adequate-to-oversupplied generation nationally—and a growing share of data center load going behind-the-meter to bypass grid constraints entirely.