Powering the AI Era: Navigating PPAs and Grid Interconnections for Data Centers

The rapid expansion of data center capacity, driven primarily by artificial intelligence workloads, is significantly increasing electricity demand. Projections indicate that data centers could account for up to 9% of U.S. electricity consumption by 2030.

Securing reliable, cost-effective, and increasingly low-carbon power requires two critical mechanisms: Power Purchase Agreements (PPAs) and successful navigation of the grid interconnection process.

Power Purchase Agreements (PPAs)

A Power Purchase Agreement is a long-term contract (typically 10–20 years) between an electricity generator and an offtaker, in this case a data center operator, that establishes a fixed or predictable price for a specified volume of power.

Source: DataCenterDynamics.

Data center operators primarily utilize two structures:

• Physical PPAs: Direct delivery of electricity from a generating asset to the offtaker, often requiring proximity or firm transmission rights.
• Virtual (or financial) PPAs: A contract for difference based on renewable energy certificates (RECs) and settlement against wholesale market prices, providing carbon accounting benefits without physical delivery.

PPAs enable data center operators to:

• Achieve price certainty in volatile markets
• Meet corporate sustainability targets (e.g., 100% renewable energy matching)
• Facilitate the financing and construction of new generation capacity

Grid Interconnection Challenges

The interconnection process for large loads (≥100 MW) remains a major bottleneck. In most U.S. markets, new loads enter the same generation interconnection queue managed by regional transmission organizations (RTOs) or utilities.

Key issues include:

• Queue volumes exceeding 2,500 GW nationally, with only 30–40% of projects reaching commercial operation
• Study and restudy cycles extending timelines to 5–8 years
• Network upgrade costs frequently exceeding $100 million, with allocation disputes between load and generation customers
• Limited visibility into distribution-level impacts for loads served at sub-transmission voltages

Recent Transaction Activity (2025)

These transactions demonstrate a shift toward baseload carbon-free resources (nuclear) and co-located or behind-the-meter configurations to mitigate interconnection delays.

Emerging Solutions

1. Behind-the-meter and co-located development Direct connection to existing generation avoids regional transmission queues.
2. Flexible or controllable load programs ERCOT, SPP, and MISO offer expedited interconnection for loads capable of curtailment or rapid response.
3. Hybrid energy solutions Combination of short-term natural gas PPAs with long-term renewable or nuclear contracts to balance speed, reliability, and sustainability

Regulatory and Policy Developments

• October 2025: U.S. Department of Energy recommended standardized large-load interconnection procedures to FERC.
• SPP introduced a 90-day review process for co-located generation-load projects.
• PJM implemented fast-track rules for data centers demonstrating operational flexibility.
• Executive actions in 2025 have accelerated federal permitting for projects exceeding 100 MW.

Conclusion

Long-term power procurement and interconnection reform are now pacing factors for hyperscale data center development. Successful projects increasingly require early-site control in favorable jurisdictions, multi-resource power strategies, and active participation in RTO stakeholder processes.

Operators that integrate load flexibility, pursue co-location where feasible, and secure PPAs ahead of final site selection are best positioned to meet 2027–2030 deployment timelines while managing cost and carbon risk.

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Until next week…

Goran Brelih and his team have been servicing Investors and Occupiers of Industrial properties in Toronto Central and Toronto North markets for the past 30 years.

Goran Brelih is an Executive Vice President for Cushman & Wakefield ULC in the Greater Toronto Area.

Over the past 30 years, he has been involved in the lease or sale of approximately 25.7 million square feet of industrial space, valued in excess of $1.6 billion dollars while averaging between 40 and 50 transactions per year and achieving the highest level of sales, from the President’s Round Table to Top Ten in GTA and the National Top Ten.

Specialties:
Industrial Real Estate Sales and Leasing, Investment Sales, Design-Build and Land Development

About Cushman & Wakefield ULC.
Cushman & Wakefield (NYSE: CWK) is a leading global real estate services firm that delivers exceptional value for real estate occupiers and owners. Cushman & Wakefield is among the largest real estate services firms with approximately 53,000 employees in 400 offices and 60 countries.

In 2020, the firm had revenue of $7.8 billion across core services of property, facilities and project management, leasing, capital markets, valuation and other services. To learn more, visit www.cushmanwakefield.com.

For more information on GTA Industrial Real Estate Market or to discuss how they can assist you with your real estate needs please contact Goran at 416-756-5456, email at goran.brelih@cushwake.com, or visit www.goranbrelih.com.

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