Democrats and Republicans may rarely agree on much of anything these days, but there is at least one common enemy bringing both sides of the aisle together: data centers. Representatives on both sides of the aisle are increasingly pushing back against hyperscalers — the handful of tech giants that operate vast global cloud and AI computing networks — developing massive data center campuses on local energy grids — buildouts that are driving up energy demand and, as a result, causing electricity prices to skyrocket for everyone, whether they benefit from the artificial intelligence boom or not.

The Trump administration has attempted to resolve the issue by pushing the tech sector to provide its own energy sources to power its rapidly proliferating data centers. While the legislation ostensibly shifts the responsibility for energy buildout — and the money to support it — back onto the tech firms responsible for skyrocketing energy demand rates in the first place, there is concern that the policy may yield 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 non-partisan news outlet Semafor. By inviting Big Tech to build its own energy infrastructure, policymakers are 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.

The approach also means the country is missing out on a major opportunity to encourage much-needed investment in its aging grid at a time when more resilience and greater transmission infrastructure is 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 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 pushing ahead with 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.

Firms like Nvidia aren't the only investors racing to build up power production capacity in anticipation of skyrocketing energy demand rates driven by the AI boom. Utilities are also rushing to add capacity hand-over-fist, resulting in a rapidly changing traditional energy market that is transforming at the same time that the so-called shadow grid is developing.

Historically, big utilities don't put assets up for sale, leaving little opportunity for outside investors to get involved. The AI boom is changing that as utilities scramble to secure funding to support their buildout. The shift is notable because regulated utilities have traditionally financed major capital programs through rates set by state public utility commissions and through debt and equity raised in the capital markets — meaning that selling pieces of themselves to private buyers represents a departure from the sector's standard playbook, and one that generally still requires approval from the state regulators charged with overseeing utility transactions and protecting ratepayers. 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.

"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 does, however, foresee 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 that tension plays out will depend in large part on questions that remain unresolved: how quickly Big Tech's self-supplied generation capacity actually comes online, and how state regulators — the gatekeepers for both utility asset sales and the rates households pay — respond to a power system that is increasingly dividing between the regulated grid and the shadow one.

By Haley Zaremba for Oilprice.com