Data Center Construction Increasingly Constrained by Legal Barriers

In recent months, data center construction has been increasingly constrained by the emergence of hundreds of legal barriers put in place by municipalities, counties, and even entire states across the country. FactSet recently summarized the nature, length, characteristics, and geographical dispersion of these barriers and examined the likely impact on power demand and capital expenditures for domestic utilities. The full report and dataset are now available on the FactSet Workstation, with the dataset to be updated on a quarterly basis.

Generally, the imminent impact on utilities is the timing of construction and load realization:

• These instruments are largely time-limited pauses, not permanent bans:
  • Given the paucity of total, or even partial, bans it appears likely that the risk is timing and process friction rather than cancelled load. One can credibly expect that data center projects will go forward. But, facing stricter and more numerous local regulations, they become harder and slower to build, while some jurisdictions may not allow them at all.
  • Paradoxically, these instruments also could reduce long-run risk: the local framework arrives, and the next project contemplates a known rule instead of an unknown one.
• Most moratoria (81%) carry a dated expiry between the fourth quarter of 2026 and the third quarter of 2027:
  • During this window, jurisdictions will decide what to do at the end of their pauses: lapse, extend, or replace with permanent standards. Consequently, the next four quarters will convert the calendar into a clearer picture of which parent utilities, states, and regional transmission organizations are most exposed to data center load being delayed or turned away. Until those votes are taken, the measurable dimension of this story is one of scheduling impacts, rather than final outcomes.
  • The likely impact of these short-term regulations is that electric service agreements that otherwise would have been signed earlier will get delayed as zoning standards are finalized and developers either demonstrate compliance or move projects to more amenable locations.

Locus of Risk: The following chart indicates which parent utilities are most exposed to data center load being delayed or turned away.

Source: FactSet

Until recently, a utility's large-load forecast derived from customer commitments: signed service requests and applications for a position in interconnection queues. But these inputs no longer reveal when, or whether, large load is likely to energize. That outcome is now significantly influenced by county zoning boards and city councils. Moratoria buy time to write permanent rules, and those rules will affect how fast, where, and at what cost projects are built.

In sum, the practical effects of current moratoria are:

• A widening gap between a utility’s announced pipeline of large load vs. the appearance of actual revenue-producing large load. This gap manifests as capex timing risk: large load forecasts may convert at a lower, less predictable rate than a utility’s economic development pipeline implies.

• Added uncertainty to a utility’s forecast of anticipated data center customer additions. Siting risk—being an additional source of doubt about when and where data centers get built—is one of several forces making data center load forecasts harder to defend.
  

Be sure to check back in for more Energy Market Insights covering the everchanging utility regulatory environment.

This blog post is for informational purposes only. The information contained in this blog post is not legal, tax, or investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.