As regional power grids struggle to keep pace with skyrocketing electricity demand from the artificial intelligence data center boom, momentum is building to turn data centers into "flexible loads" — meaning they can temporarily reduce their power consumption or disconnect from the grid entirely during periods of peak demand.

While the concept is gaining traction among both power providers and the data center industry — and is likely to be mandated in some major data center markets — industry leaders say executing such projects may be far more challenging than it sounds.

Power curtailment is fast becoming a fact of life for data center developers. PJM Interconnection, the U.S.’s largest power grid, is moving toward only connecting new data centers that agree to have their grid electricity cut when the system is under stress. Other regions are exploring similar approaches.

The concept has broad support in principle. Tech giants, data center developers and power providers have all presented flexible data centers as a key tool for facilitating digital infrastructure development without compromising grid reliability or putting upward pressure on consumers’ utility bills. Earlier this month, a new industry coalition launched to support flexible power consumption.

But industry leaders speaking this month at Bisnow’s National DICE: Power event at the Sheraton Philadelphia Downtown said, at least for now, mandates for flexibility can create problems for developers. They say curtailment requirements like those planned within the PJM grid can increase project costs and lengthen development timelines, potentially pushing developers to site projects elsewhere.

But curtailment isn’t always a deal-breaker, they said. And as the power pinch intensifies nationwide, flexible load requirements may soon become a reality that developers must accommodate rather than avoid.

“I think curtailment-based interconnection can work,” said Rolls-Royce Power Systems’ Giuseppe Marrari. “I don't think people prefer it, but I think there are strategies that can mitigate the effects of those curtailment situations.”

PJM, whose service area encompasses Washington, D.C., and 13 states in the mid-Atlantic and Midwest, asked federal regulators in August to approve a new framework governing how data centers connect to the grid and acquire power. Under the proposal, newly built data centers that don’t add capacity to the grid will have their power supply curtailed when the grid approaches dangerously low levels compared to demand. The framework would also require utilities to reduce power to data centers before any action that could disrupt service for residential and commercial customers.

While mandated curtailment might seem like another development headwind for the data center industry, experts say the policy would actually accelerate its expansion. As projects routinely face yearslong wait times for grid connections across PJM and in most major data center markets, the requirement for flexibility could unlock access to power on far shorter timelines.

Power grids are designed to ensure demand doesn't exceed supply during short periods of peak use. But typically, electricity demand only comes close to exceeding supply a few days a year. Curtailment means developers no longer have to wait years for grid connections while utilities build the infrastructure needed to accommodate the most extreme demand scenarios.

And with speed to power becoming the sector’s top priority, DICE panelists said developers are increasingly willing to accept curtailment if it means bringing projects online earlier.

“I have seen more and more developers … where they are willing to take some curtailment risk, the data center is going to be more flexible in exchange for faster power,” said Steve Shparber, co-chair of the digital infrastructure practice at Mintz. “They will look at that trade-off in a lot of instances and be OK with that.”

There is widespread buy-in for the concept of grid flexibility across the data center industry. This month, Google, Nvidia and Emerald AI launched the AI Energy Management Alliance to promote and develop strategies for flexible data centers. It is the third industry-backed group focused on grid flexibility to launch within the past year alone.

Still, panelists said curtailment requirements remain a competitive disadvantage for the markets that implement them. While data center firms have proven willing to pursue projects under such frameworks, developers said they prefer regions where they can secure power without curtailment obligations.

“The curtailment terms are really influencing our siting decisions,” said Abhijeet Shrivastava, a Microsoft program manager for global land and development strategy. “Looking at two sites with the same power availability, we are looking at the reliability and the quality of the power and picking a site which provides more reliability and does not have those high curtailment conditions.”

Shrivastava points to the fact that a site knowingly relying on on-site generation for extended periods sheds a level of redundancy for its power supply. That may not be acceptable to some tenants, for whom having a data center go offline could result in millions of dollars in economic damages.

Panelists also highlighted complications created by the on-site generation needed for power during curtailment. While almost all data centers have backup generators capable of keeping the entire facility online during an outage, curtailment means those generators would be expected to operate far more frequently — raising both community and regulatory problems.

Most backup generators run on diesel, with a growing number using natural gas. As opposition to data center development intensifies, the prospect of routinely running fossil fuel-powered generators has become a more contentious issue for nearby communities. Panelists said this creates significant development risk.

While cleaner on-site power technologies like battery storage and fuel cells are available, they are not deployable at the scale developers typically need. It can also take longer to procure this kind of equipment, potentially pushing back project timelines. Even gas turbines face lead times of up to 10 years, panelists said.

Industry leaders also warned that state and federal air quality regulations could make extended generator operation a liability in many markets. Securing permits for generation at the scale required to support periodic curtailment can often be difficult, while lengthy environmental reviews can delay project timelines. Such delays could be a nonstarter for developers, Shrivastava said.

“That's also influencing whether [developers] want to go in a location when there is curtailment,” he said. “It would have additional timeline impact due to the additional permitting — so then, the developers are looking into other sites which have higher speed to market.”

Whether curtailment is compatible with a given data center development varies from project to project, panelists said.

Multiple industry leaders emphasized that flexible load requirements are far easier to accommodate if they are known from the outset of a project’s development process, allowing facilities to be designed with power systems that can seamlessly transition to on-site generation and allowing enough time to procure long-lead equipment.

But imposing curtailment requirements later in the process can undermine a project’s timeline and economics and make developers walk away.

The type of workload hosted by a particular data center also matters. Data centers exclusively for AI training are more likely to tolerate periodic curtailment because those workloads can typically be resumed later. On the other hand, facilities hosting AI inference of particularly mission-critical workloads have a far lower tolerance for disruption, making curtailment a much riskier proposition.

“It depends on the type of data center that's being used, if it's going to be used to power emergency services or it's defense-oriented, there's going to be more sensitivity to that,” Shparber said. “But I have seen, at least with some clients we’re working with, where the data center is willing to take a bit more curtailment risk.”

While PJM is the only U.S. grid operator publicly moving toward curtailment requirements for new data center interconnections, DICE panelists said they expect similar mandates to become more common. With federal regulators forcing grid operators nationwide to overhaul their interconnection processes for data centers and other large loads, some industry leaders suspect flexible load requirements may be a model that gains adoption beyond PJM.

“I think it may proliferate elsewhere, in which case developers are going to be OK,” Shparber said. “Developers have to accept that risk or deal with it.”