Blackstone To Pay $1B For Natural Gas Power Plant In Data Center Alley

Spurred by skyrocketing electricity demand from data centers, Blackstone’s energy investment unit has agreed to acquire a natural gas power plant in Loudoun County, Virginia — the home of Data Center Alley.

Blackstone Energy Transition Partners announced Friday it reached an agreement to acquire the 774 megawatt Potomac Energy Center generating station. It didn't disclose the price, but Reuters reported that Blackstone is paying around $1B for the facility. 

The asset management giant is buying it from investment firm Ares Management, which has owned the plant since 2021.  The power station sits just four miles from Ashburn, the hub of the Northern Virginia data center market that accounts for around one-quarter of all data center capacity in the U.S. 

In its announcement, Blackstone highlighted the eight-year-old plant’s proximity to more than 130 data centers — a number the firm expects to grow significantly in the coming years. With an artificial intelligence-driven surge in data center construction straining power grids in Virginia and other key markets, Blackstone framed the acquisition as an investment in the electric infrastructure needed to support rapid data center and AI growth, calling it “one of the firm’s highest-conviction areas.”

“This investment underscores Blackstone’s commitment to investing in the electric infrastructure required to power AI innovation,” Bilal Khan, senior managing director at Blackstone Energy Transition Partners, said in a statement. “We believe Potomac is well-positioned to help meet data center-driven power demand growth in Northern Virginia.”

Blackstone is among the largest players in the data center and digital infrastructure investment landscape. The firm acquired third-party data center provider QTS in 2021 for $10B, a platform Blackstone says has grown more than eightfold in the time since. In September, Blackstone bought the Asia Pacific region's largest data center provider, AirTrunk, in a $16B deal. 

The investment giant has also partnered on development joint ventures with major data center developers like COPT and Digital Realty, and it was part of a $7.5B debt facility raised by AI cloud provider CoreWeave in May. In October, Blackstone reported its data center portfolio reached $70B, with another $100B in assets in its development pipeline. Top executives referred to the company as “the largest data center provider in the world.”

But like some other major asset management firms, Blackstone now sees opportunity in the data center sector’s skyrocketing appetite for electricity, as Big Tech’s need for AI computing drives the development of massive gigawatt-scale facilities. They are investing not just in data centers themselves, but in the energy infrastructure needed to provide them with power.

Data center lease deals signed in 2023 alone had an impact equivalent to adding a second New York City to the power grid, while the industry’s share of U.S. power consumption is expected to leap from 2.3% in 2023 to 6.6% in 2028. Electricity demand in the U.S. is expected to outstrip supply as soon as next year, with data centers accounting for the largest share of new energy consumption at 44%. Utilities will need to increase their annual power generation by as much as 26% by 2028, according to Bain & Co.

Accessing electricity has become the paramount challenge for data center developers, with wait times for grid connections in some major markets now routinely stretching north of a decade. Utilities in major data center markets have struggled to adjust to the surge in demand and are now scrambling to figure out how to build billions of dollars of new infrastructure quickly. Much of that planned generation is expected to come from natural gas. 

The Northern Virginia market has been among the most impacted by the data center power pinch, with unexpected electricity constraints delaying major data center projects since 2022. Data centers in Virginia today use nearly the electricity equivalent of 60% of households in the commonwealth, and the industry’s power consumption is expected to double within 10 years. Meeting that demand could require building around 30 new gas power plants over the next 15 years, according to a December study commissioned by Virginia lawmakers. 

For Blackstone, this energy supply-and-demand imbalance for data centers has become a central element of the firm’s infrastructure investment strategy. 

“In our view, the intersection of digital infrastructure and the need for power is one of the most exciting and critical investment themes of our time,” Sean Klimczak, Blackstone’s global head of infrastructure, wrote in an post on the firm’s website in October.  “As AI continues to evolve, the demand for data centers and power will only grow, creating a wealth of opportunities. At Blackstone, we’re committed to being at the forefront of this megatrend, and I believe the next decade will bring tremendous value to investors who recognize the potential in this space.”

Blackstone isn’t the only major asset manager buying into this thesis.

Earlier this month, KKR and a Canadian pension fund investor acquired a 19.9% stake in a trio of power transmission companies owned and operated by utility giant American Electric Power in major data center markets. The $2.8B deal will fund the build-out of new infrastructure needed to meet surging electricity demand, much of it from data centers. 

Last week, KKR announced it would be combining its real estate and infrastructure arms in pursuit of data center deals. 

Blackstone’s acquisition of Potomac Energy Center also continues a trend of investment in natural gas infrastructure, which has emerged as one of the main beneficiaries of the data center industry’s escalating energy usage.

According to S&P Global, data center growth could add 50 gigawatts of new gas generation to U.S. grids by 2030, single-handedly raising power sector gas demand in the U.S. by almost 17%. Massive data center projects like Meta’s planned campus in Louisiana and Oracle and OpenAI’s “Stargate” development in Texas are increasingly powered directly by natural gas generation located on-site. 

The data center industry’s growing affinity for natural gas power is spurring significant capital market activity. In addition to Blackstone’s billion-dollar deal in Loudoun County, nuclear energy giant Constellation Energy agreed earlier this month to the $16.4 billion purchase of Calpine, the country’s largest generator of electricity from natural gas, in what is the most valuable U.S. power deal in close to 20 years.