🚨Pennsylvania’s data center gold rush – with $110 B in announced investment including Amazon’s $20 B AI campuses – is straining the state’s power grid. PJM’s 2025–26 capacity auction costs spiked to $14.7 B, up from $2.2 B the prior year, largely due to data center demand. Utilities like Duquesne Light are already hiking rates 9–15%. For CRE capital, underwriting in this sector now requires accounting for volatile energy pass-throughs, potential new “high load” rate classes, and longer permitting timelines.
PJM capacity auction costs: $14.7 B for 2025–26 vs $2.2 B prior year
Projected large-load demand: 32 GW by 2030, up from 10 GW today
Utility bill hikes: 9–15% June 2025 residential/commercial rate increases (Duquesne Light)
Loan Performance. Higher OpEx from electricity (20–30% of data center costs) compresses DSCR unless leases shift costs to tenants. Caps/floors on pass-through charges may become a financing condition.
Demand Dynamics. Industrial land in PA tied to substations/power plants now trades at a premium. Tech-anchored CRE has strong demand, but water and community concerns may slow absorption.
Asset Strategies. Developers must budget $1–3 M+ in community benefit agreements and invest in redundant power systems. Sequencing phases with grid upgrades reduces downtime risk.
Capital Markets. Infrastructure funds and tech co-investors remain active, but lenders demand higher DSCRs and structure covenants for energy cost shocks. CMBS tone cautious until tariffs clarified.
Power-driven OpEx spikes are reshaping underwriting.
Data center land near substations holds premium demand.
Financing requires higher DSCR and hedged power contracts.
Exit cap rates in PA may price in 50–100 bps risk premium.
🛠 Operator’s Lens
Refi. Model surcharges of 1–3¢/kWh; negotiate tenant pass-throughs in leases.
Value-Add. Tie capex to onsite generation or PPA partnerships; carry contingency for grid upgrades.
Development. Underwrite at least 24-month permitting; phase builds to align with power capacity.
Lender POV. Banks and CMBS require visibility on power tariffs; favor projects with prepaid grid upgrades or long-term PPAs.
Expect PJM and state approvals for new peaker plants, transmission lines, and battery storage in 1–3 years.
PA legislature likely to pass a dedicated Data Center Rate Class and streamlined permitting by 2026.
Market outcome will hinge on whether power costs stabilize – failure could slow projects or trigger consolidation.
Allegheny Front — AI Data Center Boom Threatens Grid Costs (July 2025). Reed Smith — Pennsylvania Lightning Plan & Data Center Policy (July 2025). PJM Interconnection — Capacity Market Results 2025–26 (July 2025). Pennsylvania PUC — Capacity Auctions and Rate Impacts (June 2025).
