Akerman's James Grice Talks On-Site Power Generation At Data Center Capital Markets Event

In the face of grid power constraints, data center investors and developers are turning to on-site, behind-the-meter power generation and taking on the dual roles of electricity producers and consumers.

The shift is an example of how the booming industry is responding to a challenge: power grid infrastructure that will require expensive and time-consuming upgrades, along with rapid innovation, said James Grice, chair of data centers and digital infrastructure at Akerman, a full-service national law firm.

“It's a complex challenge that’s forcing the user side to look at innovative delivery techniques our clients may not have considered a few years ago,” Grice said. “The next few years are going to be a time of tremendous innovation in the data center and energy marketplace, spanning financing, technology, contracting and even business plan innovation.”

Grice will be moderating a panel titled From Capital to Concrete, Translating Investment Into Data Center Construction at Bisnow’s July 15 National DICE Capital Markets event at the New York Marriott Marquis. Click here to register.

Bisnow spoke to Grice about how capital market innovation is moving in lockstep with the industry’s engineering and infrastructure innovations, and how Akerman’s bench of experts is helping clients home in on the opportunities amid the challenges.

Bisnow: What are some trends you’re seeing in the national data center market?

Grice: We’re seeing site selection requirements shift. Hyperscalers seeking sites for artificial intelligence training locations are considering more remote locations whose latency requirements aren’t as high as previously needed.

Another huge trend is how power procurement is evolving. Utilities are not used to receiving 500-megawatt or 1,000 MW interconnection requests, but they’re receiving a lot of them now.

We’re tracking how various jurisdictions across the country are passing legislation that affects how utilities are managing these requests. The most notable is the recent SB6 legislation in Texas. 

It’s a bottleneck that is opening up demand for on-site power generation as the primary power source, which creates a whole slew of novel deal points and technical parameters that then need to be considered, and which in turn impact site selection. 

Bisnow: What are key considerations when a data center operator becomes a power producer?

Grice: Hyperscalers probably understand power generation better than some of the utilities because they are managing power procurement throughout their whole global portfolio. All of them have incredibly sophisticated power departments.

From a deal point of view, on-site power generation requires a whole new skill set spanning development, design, construction and finance, with the financing based on guaranteed power purchase agreements over years or even decades. 

Bisnow: What should data centers keep top of mind?

Grice: In a private transaction between a power provider and power consumer, there are different ways to structure contracts. In the case of gas-fired power generation, who takes on the gas pricing risk? How do you create proper redundancy for a user that is typically accustomed to having very reliable grid power? While data center companies may have sophisticated power procurement teams, are those teams set up to address procurement of equipment, services, and the like needed to actually build power plants? These and other questions are front and center when primary on-site power is needed.

Bisnow: How do you think panelists at the event are likely to tackle this topic?

Grice: The panelists at the upcoming event are capital markets-focused so the discussion is likely to center on the financial innovation attendees might expect to see in the market. The sheer scale dictates certain solutions that otherwise might not have been considered in the past.

Bisnow: Can you give an example?

Grice: We’re already seeing migration to a more streamlined net leasing approach in data center leases. For a 100 MW built-to-suit data center project, you need to realign risk factors in order to attract the scale of capital sources needed. Triple-net structures, where the occupant also takes over operations and maintenance, opens up access to a much deeper pool of capital for both the debt and equity sources. The net lease structure simplifies underwriting and avoids getting into the service delivery issues.

This is a trillion-dollar marketplace. To bring that kind of capital to bear is going to require leveraging tried-and-true financial techniques. We’ll also need access to public capital equity markets to satisfy the capital demand. I anticipate you will see companies accumulating these triple-net lease assets, bundling them into a REIT and going public with them.

Bisnow: What needs to happen to keep fueling the market’s rapid growth?

Grice: Most people I talk to are projecting robust growth through 2030 and beyond. Akerman is doubling down on growth to enhance our ability to serve clients with on-site primary power generation, in addition to the more typical work we do involving on-site development, lease negotiations, project finance and disposition of completed facilities. 

Because of our broad coverage of the data center and energy sectors, we have a comprehensive view of the issues that come up along the whole continuum of the data center life cycle.

Bisnow: What questions lie ahead for the industry? 

Grice: I’m hearing more industry players talk about on-site primary power as the power source, with grid power seen as augmenting primary power in the future. Grid power has its challenges. It will require very time-consuming and expensive upgrades. Will on-site power generation ultimately become the preferred, long-term solution to that bottleneck and to capture long-term power pricing stability? It’s an open question, but I believe it will, given a large portion of our clients are looking at on-site options.

Historically, the industry relied on power from the grid for the overwhelming amount of power consumed, with only emergency backup on-site power generation. Is that dynamic going to flip when it comes to data centers? I think we’re migrating to a point where on-site power will become commonplace, if not the preferred component of data center power supply.

Grid power issues are starting to stress various regions of the country, where we are starting to see curtailment requests and other challenges. Grid power is facing a range of challenges, and the solution may be on-site power. That’s going to open up business models and opportunities that weren’t viable in the past. 

For instance, since on-site primary power allows data center users the ability to own or control the on-site power resource, it may also enable users to rely on interruptible grid power, which may translate into material savings. Who knows? The future will be very interesting as we march down the path led by AI demand. 

Click here for more information about the July 15 Bisnow event.

This article was produced in collaboration between Studio B and Akerman. Bisnow news staff was not involved in the production of this content.

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