The power and utility sector is entering a transformative era driven by unprecedented energy demand after decades of modest load growth. This surge is not expected to abate in 2026. While there is strong demand outlook, utilities are adopting a more strategic and disciplined approach when engaging with prospective data center projects. The overall goal is to ensure sustainable growth to meet the demand of artificial intelligence (AI) while mitigating market risk for electric utilities facing generation capacity and interconnection queue constraints. The only questions are: (1) which load projections are realistic (versus optimistic) and (2) how and when does technology and efficiency improve to bring down the power demand curves for data centers?
BloombergNEF forecasted in December 2025 that data center power demand will reach approximately 106 GW by 2035, which is a 36% increase from their April 2025 estimate of 78 GW.1 Notably, one quarter of these new projects exceeded 500 MW, indicating not only an increase in power demand but a substantial escalation in scale. This represents a unique long-term opportunity for utilities; however, several factors constrain growth:
-
Power Pricing Constraints: Current market pricing and forward curves for power are challenging for driving additional investment in financing new generation, particularly gas-fired generation, where costs continue to climb. Increased cost for new gas-fired generation is the result of increased costs for raw materials, construction labor cost increases (prevailing wage and inflation), skilled labor shortages (electrical and mechanical) and OEM pricing power and reservation fees due to gas turbine demand.2
-
Timing Constraints: The constraints in the gas turbine market contribute to a substantial procurement delay for new gas-fired generation; however, there are permitting lead times that can induce delays of up to two years for air and water permitting in some states. Layering on top of that, substantial interconnection delays in most regions extend the time involved to build and connect new generation for supply to data centers.
-
Fuel Constraints: Increasingly, natural gas access is constrained in many US locations and this is becoming a key criterion for siting data centers versus just access to the grid and water sources, which have been the primary concentration for developers assessing potential siting for data center projects.
1 Bloomberg NEF, AI and the Power Grid: Where the Rubber Meets the Road | BloombergNEF, accessed January 9, 2026.
2 The New Reality of Power Generation, An Analysis of Increasing Gas Turbine Costs in the U.S., Gridlab, Energy Futures Group and Halcyon, September 2025.
This growth inevitably introduces substantial risk to utilities, depending on how utilities structure the data center agreement with the tariff/rate, overall electric service agreement, and large load agreement. However, it is notable that municipal and electric cooperatives have substantial opportunities to capitalize on this market due to the following dynamics that militate in favor of their characteristics.
-
Speed to Market and Innovation: Municipal / cooperative utilities can make localized decisions much more quickly due to their size and their governance structure expedites capitalizing on the data center opportunity, where it may take investor-owned utilities more time to make investment decisions. This also allows municipal / cooperatives to be more innovative about potential power solutions for the project and apply speed to market to execute agreements and enable quicker interconnection.
-
Competitive Rates: With access to the wholesale market, lower overhead and more favorable rate structures, municipal / cooperative utilities can offer competitive electricity rates to data center projects while protecting their legacy retail customers. In addition, many municipal / cooperative utilities do not have the same level of external regulator review which can provide speed to market benefits.
-
Community Engagement: Municipal / cooperative utilities often have extraordinarily strong community engagement due to their role and presence in the local communities, which can be a substantial advantage for data center projects who often encounter community pushbacks. Both the utility and the data center need to understand and accurately and proactively communicate the environmental (air, water, and noise impacts) to ensure project success.
In this market environment, what should a municipal / cooperative utility do to take advantage of their strengths as it relates to potentially serving new large loads? In my experience, it is first essential that the electric utility develops a “large load playbook” that has the following key considerations:
-
Defining Strategic Position: includes three important features: (1) developing desired system boundaries (i.e. locations, capacity constraints, infrastructure limitations, community considerations), (2) setting baseline commercial and operational considerations (i.e. reliability, cost responsibility, credit and collateral positions, permitting, etc.) and (3) establishing internal organizational alignment, including education of internal regulators (e.g. city council or cooperative board) regarding the risks and opportunities associated with large load projects.
-
Preparing for the Market: includes developing a concise request for information (RFI) for quick screening of viable projects – that includes things like power generation requirements and configuration (sleeving vs building), load shape, redundancy, cooling technologies, procurement, project controls and planning, references, and other infrastructure needs. It is essential to be able to evaluate/score viable projects to determine which projects best suit the utility’s strategic position. Lastly, developing processes and intake mechanisms such as large-load landing pages will help explain the utility’s position and source potential projects.
-
Defining Commercial Terms: includes establishing an initial commercial terms position that allows the utility to lead versus being reactive to potential data center projects. Developing a draft Letter of Intent (LOI) that defines roles, responsibilities, and the commercial agreement terms from the utility’s perspective is preferable. This process also allows the utility to analyze ways to manage risk before being approached by hyperscalers or other data center project developers.
GDS has been fortunate to assist municipal and cooperative utilities with the full spectrum of managing large load opportunities, including developing “large load playbooks,” conducting interconnection studies, implementing power supply solutions, and developing rate tariffs. For more information on how GDS can help with your large load situation, please reach out to Katherine Blue, Chris Dawson, or Garrett Cole.
