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Access to reliable power is increasingly becoming the holy grail developers are chasing in the race to build data centers.
Tech companies have poured massively over the past year investments in the construction of data centers. The demand for the facilities have construction activity supported on the whole, and probably will continue to do so.
But increased demand alone is not enough for construction crews to start building these structures. Smart developers are increasingly converting their own attention to energy needs before the blades hit the ground.
Here, Tom Harper and Jodi Harper, data center leaders at Gallagher, a Chicago-based insurance, risk management and consulting firm, talk to Construction Dive about power constraints in data center development and new risks emerging on these construction sites.
This interview has been edited for brevity and clarity.
Construction Immersion: What’s the biggest change you’re seeing in the way data centers are built today compared to even a year ago?
TOM HARPER: The most notable change is that power now drives design decisions much earlier than before.
Tom Harper
Courtesy of Gallagher
We’re seeing sites designed around energy availability and resilience first, with building layout, phasing and even cooling strategies adjusted to match what can realistically be delivered. There is also more modularity, both in construction sequencing and electrical infrastructure, to allow projects to come online in phases rather than waiting for full utility construction.
JODI HARPER: The design is now driven by power density and speed to power first. Power availability is affecting site locations. Emerging technologies also influence how buildings are designed around what might come next versus what is being deployed today.
Do lenders now need power certainty before moving forward?
TOM HARPER: The certainty of power has become fundamental to financing. Lenders and equity partners increasingly want executed power purchase agreements, or at least firm interconnection commitments, before capital is fully committed or deployed. Without this visibility, projects face higher financing costs or stalled closures, because energy risk is now seen as a fundamental viability issue rather than an operational detail to be resolved later.
When developers look to alternatives such as on-site or nuclear generation, how does this affect construction timelines and risk between contractors and partners?
TOM HARPER: Alternative energy solutions and “bring your own capacity” can add complexity and lengthen timelines, especially on the front end of project development. They introduce new regulatory, permitting and interface risks that must be carefully allocated between EPCs, equipment suppliers and developers or owners.
From an insurance and risk perspective, these projects require a much clearer delineation of responsibility, because traditional construction risk assumptions do not always apply to next-generation technologies, either because of scope or because of knowledge and experience in specific products and facilities.
Jodi Harper
Permission granted by Gallagher
JODI HARPER: The search for alternative energy sources certainly changes the risk and delay in the early stages of the project. Nuclear alone requires extensive feasibility studies, interconnection analyses, fuel supply considerations and regulatory approvals.
Where are the biggest vulnerabilities that arise during construction?
TOM HARPER: Fire remains a major concern, particularly as power density increases and systems are powered prior to construction. We’re also seeing heightened risk around water, both from aggressive cooling strategies and weather-driven flooding.
In our experience, build quality and speed have not been an issue, but the filtering of site selection for catastrophic losses has been largely overridden by the need to build quickly. Risk engineering at the facility itself to mitigate potential catastrophic losses appears to be the preferred path.
Finally, supply chain risks remain the most serious risk associated with the efficient deployment of capital in the data center construction space.
When does power availability become a deal breaker for where to build a data center?
TOM HARPER: We are certainly already at this point in many markets.
If a site can’t demonstrate a credible path to sufficient power in a reasonable amount of time, it’s getting scrapped entirely for that development cycle. Developers and investors are prioritizing locations with clear utility alignment, transmission capacity, or viable alternative energy options, even if that means higher upfront costs or less traditional geographies.
The second layer to consider is local community and political buy-in for potential projects in terms of permits, tax incentives, and reinvestment by data center developers in the communities they want to build.
