Data centres are ‘convenient scapegoats’ for grid failures, says energy consultant

In December 2025, John Farrell, Co-Director of The Institute for Local Self-Reliance (ILSR), stated during a discussion with ESN Premium that data centres could receive exemptions from usual environmental regulations. Public concern about data centres arises from many cases in which the development of these facilities appears to enjoy special privileges.

Although contracts are usually confidential between utilities and data centre operators, he suggested that data centres probably obtain more favourable terms than they genuinely deserve.

Farrell further stated, “I believe the key to understanding whether data centres cause (utility bill) cost increases is to ask: ‘do they receive a sweetheart deal?’ My suspicion is that they do. There are many ways this could happen. For instance, it might involve tax abatement not visible on utility bills but reflected in property taxes.”

“It could be a preferential rate for purchasing electricity. It might also involve infrastructure built by the utility—like new power lines or substations connecting the data centre to the grid—that other customers end up paying for. Even if they save money on electricity, they might still be bearing costs for these assets.”

Jayasuriya presents a different idea: that data centres are “convenient scapegoats” for a lack of adequate infrastructure.

A convenient scapegoat

Jayasuriya recalls that when Winter Storm Uri plunged Texas into darkness in February 2021, the finger-pointing began immediately. Wind turbines, natural gas facilities, grid operators, everyone had a villain.

“There was a lot of finger pointing going on about ‘oh, well, it was the wind farms, or it was this, it was that,’” recalls Jayasuriya, a principal with Sendero Consulting who leads the firm’s energy and utilities practice.

“Now that we’ve had a few years to sit back and look at it, there were a number of things. It was, in a sense, cataclysmic; there were a number of things that went wrong during that time.”

Now, as AI drives an unprecedented boom in data centre construction, and in turn, demand on the grid, he believes the blame game has found its newest target.

However, Jayasuriya argues that the idea data centres are causing the breakdown of America’s electrical grid oversimplifies a more complex situation: years of postponed infrastructure upgrades facing rising 21st-century demands, and a chance for change.

“I think it’s the scale of the data centres that’s going up and the fact that they are high-demand design facilities that make it very easy for people to say, ‘Oh yes, data centres are messing up the grid. Data centres are causing prices to rise,” Jayasuriya explains. “But they are more of a signal than anything.”

The raising of concern, however, isn’t unfair. Some data centres, as non-profit think tank The Lincoln Institute of Land Policy notes, “can use as much power as 100,000 homes or more. Meta’s Hyperion data centre in Louisiana, for example, is expected to draw more than twice the power of the entire city of New Orleans once completed.” 

It’s understandable that consumers are frustrated, electricity bills are increasing, and large new facilities seem to be the main cause.

Jayasuriya says, “We can include things like poor transmission planning, lack of infrastructure upgrades, or non-investment in more generation capacity. There are a number of things that are leading to grid risk.”

He sees a pattern repeating itself.

“Take that example (Winter Storm Uri), and then take other things that have happened within the power industry in the past, and there’s this repeated pattern of ‘okay, what is something that’s causing stress? And then let’s just posture to make sure that if something really, really bad happens to the grid, we can be like, I told you, those data centres were bad.'”

Co-Location and self-generation

Jayasuriya notes that less attention is given to how data centre developers are addressing grid constraints by constructing their own power infrastructure.

“A lot of data centres or data centre complexes that are going up are also going up with associated combined cycle facilities or associated BESS facilities that will support the data centre and potentially give back to the grid,” he notes.

“What’s really interesting about that is I think a lot of folks that are putting up these data centres are realising that there is an opportunity to not only get self-supported power, but essentially even a financial opportunity to give power back into the grid.”

The strategy involves combining energy storage with solar power and utilising off-peak electricity to charge batteries, which are then used during periods of high demand. “That, along with other co-located generation facilities, represents an investment opportunity. Not only are the centres themselves involved, but investors see this as a way to enhance grid reliability and capitalise on market opportunities.”

In a 2025 guest blog for Energy-Storage.news, William Derasmo, partner at US law firm Troutman Pepper Locke noted that “Energy storage systems co-located with data centres need to be able to function effectively in more confined surroundings. Innovation is a must, and one solution that developers are exploring with optimism is the vertical stacking of storage containers to make the most of limited floor space.”

Co-location is a trend developing in the industry. Recently, data centre developer CyrusOne and independent power producer (IPP) Eolian announced the deployment of a 200MW data centre campus at a pre-existing grid-scale BESS site in Fort Worth, Texas.

A similar co-located project, though with the data centre and BESS deployed in reverse order, was announced in October 2025 by developer Calibrant Energy. That project will see Calibrant delivering a 31MW/62MWh BESS at Aligned Data Centres’ campus in the Pacific Northwest area of the US.

This trend has also been observed internationally, for example, when Swiss real estate developer ERNE Gruppe and architecture firm FlexBase announced plans to construct a data centre featuring a 500MW BESS.

For Jayasuriya, one of the most important yet often overlooked aspects of the data center boom is its impact on power generation.

“The fact that there’s renewed interest from an investment standpoint on the generation side is exciting, because I think that’s been lagging over the last 20 years or so,” he says. “I’ve been going to market meetings, and people always say, ‘Well, we know there’s a capacity crunch, but there’s not that much appetite for investment.’ Now that there’s an appetite for investment, that’s a good thing.”

He also highlights, in an ideal situation, small modular nuclear reactors as a potential option: “Nowadays, you have small-scale nuclear reactors powering an aircraft carrier or powering a submarine. An aircraft carrier draws about as much energy as a small town does. When you think about taking something like that and putting it next to a large load facility and maintaining it that way, it’s an interesting option and innovative.”

The consumer cost reality

The most contentious issue remains cost distribution. As Jayasuriya explains, “When you think about the power value chain, the consumer gets hit last. That’s where the dollar in the power value chain really starts. The consumer pays the utility, the utility pays the transmission company, and the transmission company pays the generator. Up and down that value chain, there has to be distribution of these costs, and it all kind of falls down to the consumer.”

This creates a fundamental tension: grid modernisation requires investment regardless of data centres. “Just modernising the grid altogether is going to take investment,” the principal emphasises.

Jayasuriya acknowledges the scale of some projects is concerning: “I am certainly not stating that there isn’t a big draw and a big demand that is being created by these data centres going up, and the sheer scale is, I don’t want to say it’s alarming, but you look at it and you think, ‘Okay, well, there’s got to be better long-term solutions from a total grid aspect.'”

Yet he also notes, “There’s market mechanisms in place in some of these markets where large loads like data centres can cut back their usage to give that power into the grid to keep costs down at that point, to work as controllable loads.”

The juxtaposition of the situation is not lost on Jayasuriya. He says, “These same consumers that will say these data centres suck because my prices are going up, and then they’ll turn around and start using their ChatGPTs to do their work or get online and watch YouTube. You want all the comfort and the functionality of what these things are providing, but then you decry the fact that this is affecting something.”

Possibly the most significant challenge Jayasuriya identifies is fragmentation in grid planning and investment.

“The organisations that are either the policy makers for this or the actual utilities themselves, some are all in, some are all out, some are indifferent. It’s not going to thrive that way,” he says. “If you think about it, it’s like the human body works with everything that’s functioning really great. If you have your hand tied behind your back, it’s much harder to push something down the road.”

He continues, “What would be great is some direction to get everybody to the table to understand that everybody’s got to do their part to improve.”

This includes honest communication with consumers about both the costs and benefits of data centre development. “There needs to be direction and tone set for the reality of where the grid is and where the grid needs to be. I think there needs to be really good communication to consumers around what that’s going to mean for them from not only a cost perspective, but also a benefit perspective. I think that’s a change management component.”

The alternative to these honest discussions, to Jayasuriya, is something that has not worked in the past, continuing to patch an ageing system. “You don’t want to be going from old infrastructure to new infrastructure to old infrastructure to new infrastructure, trying to move power in between. It needs to at least get to a nice baseline of operation.”

Jayasuriya is careful to note that data centres aren’t the only driver of increased demand. “There’s new construction going up all the time. There are certain pockets in our state that from even just a residential perspective, there are cities and townships that are expanding pretty heavily. There are certain population movements that are happening in certain states now that require infrastructure as well.

The data centre boom, in his view, is making unavoidable infrastructure needs impossible to ignore. “It’s just felt like it’s been very passive for a while, and now that there’s a little more activity that’s being pushed by these large data centres, things are active again.”

The Energy Storage Summit USA will be held from 24-25 March 2026, in Dallas, TX. It features keynote speeches and panel discussions on topics like FEOC challenges, power demand forecasting, and managing the BESS supply chain. ESN Premium subscribers can get an exclusive discount on ticket prices. For complete information, visit the Energy Storage Summit USA website.