In a political moment when Democrats and Republicans rarely agree on anything, at least one common adversary is uniting both sides of the aisle: data centers. Lawmakers from both parties are increasingly pushing back against hyperscalers developing massive data center campuses on local energy grids — projects that drive up energy demand and send electricity prices skyrocketing for everyone, whether they benefit from the artificial intelligence boom or not.

The backlash marks a sharp turn for a power system that had seen essentially flat electricity demand for roughly two decades. Consumption is now climbing again, and grid planners across the country have been revising their load forecasts sharply upward as data centers account for a growing share of new demand — a shift that utilities, regulators and investors are still working out how to absorb.

The Trump administration has sought to resolve the issue by pushing the tech sector to provide its own energy sources to power its rapidly proliferating data centers. But while the legislation ostensibly places the responsibility for energy buildout — and the money to support it — back onto the tech firms responsible for skyrocketing demand rates in the first place, there is concern that the policy may produce considerable and costly unintended consequences.

Trump “essentially envisions a bespoke new power system built in parallel to the existing one,” argues a recent op-ed from the energy editor of the non-partisan news outlet Semafor. By inviting Big Tech to build its own energy infrastructure, policymakers are effectively inviting the private sector to create a shadow grid that operates outside the regulations governing standard electricity grids, as well as the oversight mechanisms that ensure compliance with other policy measures, such as environmental protections.

There is also a cost to stepping aside. By encouraging Big Tech to invest in its own energy infrastructure, the country is forgoing a major opportunity to direct much-needed investment into its aging grid at a time when more resilience and greater transmission infrastructure are sorely needed. “Most of today’s cost pressure is coming from transmission, distribution, and system readiness, not energy supply,” Brandon Owens, a grid expert and founder of the advisory platform AIxEnergy, was quoted by Politico last week. “Those costs remain even if a data center self-supplies generation.”

Despite these concerns, Big Tech is moving forward with truly gargantuan energy infrastructure projects, most of which are being developed in tandem with sprawling data center campuses. Amazon is currently building a gas-fired power plant in Texas that is set to become the single-biggest source of power-related emissions in the entire United States, the New York Times reported. And just this week, Nvidia announced that it would team up with Japan’s SoftBank and the United States government to build the country’s largest fossil-fuel plant to power an OpenAI project in Ohio, according to Reuters. The deals are part of a broader wave of tech-backed generation agreements that has also included arrangements to draw power from existing nuclear plants.

Firms like Nvidia are not the only investors racing to build up power production capacity in anticipation of the skyrocketing energy demand rates driven by the AI boom. Utilities are also rushing to add capacity hand over fist — industry capital spending on grids and generation has climbed to record levels in recent years — and the result is a rapidly changing traditional energy market that is transforming at the very same time the so-called shadow grid is developing alongside it.

Historically, big utilities do not put assets up for sale, leaving little opportunity for outside investors to get involved in the sector. That scarcity is rooted in the business model itself: regulated utilities operate as state-sanctioned monopolies whose returns are set by public utility commissions, and the steady cash flows that come with that status have long made utility assets rare visitors to the selling block. But the AI boom is changing that dynamic as utilities scramble to secure the funding needed to support their buildout. Increasingly, major utilities are rushing to “sell off non-core chunks of their regulated businesses to raise that cash, and willing to cut good deals with buyers,” Semafor recently reported.

That opening has not gone unnoticed by private capital. “This is totally unique from an investor standpoint, because people haven’t seen these assets [for sale] in 20 years,” Jeff Jenkins, co-founder of the Louisiana-based private equity firm Bernhard Capital Partners, told Semafor’s climate and energy editor Tim McDonnell. “When you can buy a regulated monopoly at a discount, you do it.”

Jenkins, however, foresees that this rush of private capital into utilities could ultimately lead to a bubble for the sector, as Big Tech is now evolving to supply its own electricity through natural gas plants that have nothing to do with traditional power grids or utilities. “After this big supercycle of building, those same utilities will go right back to buying,” he predicts.

How it plays out will hinge on questions the industry is only beginning to answer: whether state regulators, whose approval is generally required for sales of regulated assets, sign off on the divestitures now on the table, and whether the self-supplied plants of the shadow grid ease any cost pressure on ordinary ratepayers, given that the transmission and distribution bills Owens describes will arrive either way.

By Haley Zaremba for Oilprice.com.