Key points

• Data center developers need large volumes of reliable power on a timeline that conventional grid planning does not match, which is driving new power purchase structures.
• The main options are physical PPAs, virtual (financial) PPAs, on-site or co-located generation and hybrid arrangements, each with distinct allocation of price, delivery and regulatory risk.
• Interconnection delays and large-load tariffs are often the controlling constraints, and they should shape structure before the commercial terms are fixed.
• Credit support, change-in-law provisions and termination payments are where the largest risks sit in long-dated contracts of 15 to 20 years.
• Corporate sustainability goals add questions about hourly matching, additionality and the treatment of firm clean power such as nuclear and geothermal.

Why power is the gating item

The growth of AI workloads has changed the scale at which data center operators and their customers think about electricity. Single campuses are now planned at hundreds of megawatts and, in some cases, at a gigawatt or more. In many markets, grid operators and utilities cannot connect load of this size quickly, and interconnection queues for new generation are long. A project that has land, financing and customers can still be held up by the absence of deliverable power. As a result, the power arrangement has become a front-line commercial and legal workstream rather than a back-office procurement exercise.

The main structures

Physical PPA. The buyer contracts with a generator, or through a retail supplier, for the delivery of energy at a defined location. In regulated or vertically integrated markets, the buyer may need a utility to be party to the arrangement or to use a special tariff. Key points include delivery point, firming and shaping, curtailment rights and the treatment of congestion and basis cost.

Virtual PPA. A financial contract for differences settled against a market price at a hub or node, typically paired with the transfer of renewable energy certificates. The buyer does not take physical delivery. Virtual PPAs are widely used by corporate buyers because they can be executed across markets, but they expose the buyer to basis risk between the generator's node and the data center's load zone, and to accounting and credit-support requirements.

On-site or behind-the-meter generation. Generation located at the facility can reduce reliance on the grid and speed up energization. It brings its own issues, including fuel supply, permits, emissions and reliability standards, and the need to decide whether the facility will also remain grid-connected for backup.

Co-location with an existing plant. Pairing a data center with an operating generator, including nuclear, gas or hydro plants, has attracted considerable attention. Regulators have examined how these arrangements interact with transmission service, cost allocation and resource adequacy, and rules have continued to evolve. Parties should confirm the current regulatory treatment in the relevant market before relying on it.

Hybrid and portfolio structures. Many buyers combine renewable PPAs, firm supply and storage, with a utility service agreement as the backbone. The documents need to work together, in particular on which party bears the cost if one element is delayed.

Interconnection, tariffs and utility terms

Utilities in several states have proposed or adopted large-load tariffs that require minimum demand charges, long contract terms, collateral and exit fees for new data centers. These terms can matter as much as the price of energy. Developers should engage early with the utility on timelines, upgrade costs and whether the load can be phased. Where the generator is a new build, the project's interconnection position, including queue status and network upgrade liabilities, should be diligenced before signing, and the PPA should deal with the consequences of delay through milestone dates, liquidated damages and termination rights.

Risk allocation in long-dated contracts

Price and volume. Fixed-price structures give certainty but create mark-to-market exposure if the data center's load grows slowly or power prices fall. Take-or-pay or minimum offtake obligations should be tested against realistic ramp schedules, since AI campuses often energize in phases.

Credit support. Generators and their lenders will look to the creditworthiness of the buyer. Letters of credit or parent guarantees may be required, and the amount can grow with the mark-to-market value. Negotiate reduction mechanics and cure periods.

Change in law. Contracts of 15 to 20 years will outlast current tax incentives, tariff structures and market rules. Define which changes allow repricing or termination, and who bears the risk of a change in clean energy tax credits.

Curtailment and reliability. Decide who bears the cost of curtailment by the system operator and whether the data center can offer flexibility, such as load shifting, in exchange for faster connection or better terms.

Termination payments. Early termination provisions can create large liabilities. Seek clear formulas, with symmetry where possible, and consider the interaction with project finance documents.

Sustainability commitments

Many technology companies have public commitments on emissions. Annual matching of consumption with renewable certificates is giving way in some commitments to hourly matching and to the use of firm, carbon-free sources. These approaches raise questions of additionality, geographic deliverability and certificate tracking. Buyers should confirm that the contract delivers the attributes needed to support the claims they intend to make, and consider the consumer protection and securities disclosure implications of those claims.

Practical advice

Begin with a power plan that models the load ramp, the grid connection path and the options for bridging power. Treat interconnection and utility tariff terms as part of the commercial negotiation. Keep PPA documents aligned with financing needs from the outset, since lenders will test credit support, step-in rights and change-in-law provisions. And build flexibility, because the size and timing of AI demand remain hard to forecast.

Corvane Ryle's Energy & Infrastructure practice advises developers, utilities, investors and technology companies on power procurement for data centers, working with our Technology industry team. Isabelle Duchamp-Moore in London is available to discuss the issues in this note.