PJM plan could accelerate data center power deals, analysts say

By Kavya Balaraman and Sumit Saha

Feb 13 (Reuters) – A plan from PJM Interconnection, the largest power grid operator in the U.S., to manage burgeoning power demand from data centers could accelerate deal-making between data-center owners and independent power producers, analysts said.

The plan, released last month, outlines a structure in which new large power users would either bring their own new generation to the grid or operate under a “connect-and-manage” framework that could have them scale back their power usage ahead of other emergency measures when the system is stretched.

The proposal would also fast-track a backstop power capacity auction to help prevent shortfalls across PJM’s footprint.

While parts of the proposal will need regulatory approval, analysts said the “bring-your-own-generation” element could particularly boost deals between data-center owners and power producers.

“I would expect to see over the next couple of months a flurry of major data center-slash-power deals to get announced by the independent power producers, and the data center owners and big tech companies,” said James West, managing director at Melius Research.

POWER DEMAND TO HIT FRESH RECORDS

PJM’s proposal comes as U.S. electricity demand continues to climb. The Energy Information Administration’s January outlook shows power consumption rising again in 2026 and 2027, after setting a second straight annual record in 2025, driven in part by rapid growth in artificial intelligence.

That surge has already pushed data-center operators to secure long-term power supplies.

Last year, Talen Energy expanded its partnership to supply Amazon Web Services data centers with up to 1,920 megawatts of nuclear power, while Constellation Energy struck a deal with Meta Platforms to keep one of its nuclear reactors operating for another two decades.

Rising AI power demand is also spurring questions about increasing consumer power bills, prompting companies such as Anthropic and Microsoft to announce initiatives to limit the impact of data centers on consumer energy prices.

PJM said last month it had begun discussions on creating a backstop auction, marking a step towards procuring the power needed to meet growing power demand in its footprint.

The administration of U.S. President Donald Trump has separately urged the grid operator to conduct an emergency power auction to bolster supply.

Analysts said the risk of being pulled into the proposed backstop mechanism gives data centers a stronger incentive to pursue bilateral deals with power producers.

Data centers that don’t bring their own power may end up paying for new generation anyway – without owning the energy, said Andrew Rocco, stock strategist at Zacks Investment Research.

That “pay-or-play” dynamic makes direct deals with IPPs more attractive and hedge-able than exposure to volatile PJM capacity prices, he added.

Some analysts also expect the proposal to spur consolidation in the power sector, as smaller developers may lack the capital to navigate PJM’s potential new requirements.

“We expect larger IPPs (like Vistra, Constellation or Talen) to acquire smaller developers to create “mega-sites” that package land, power and fiber,” Rocco said.

Constellation Energy declined to comment, while Vistra and Talen Energy did not respond to requests for comment.

Analysts cautioned, however, that implementing the plan could face hurdles, including permitting challenges and state-level approvals.

“A ‘flurry of deals’ will be constrained by real world obstacles to get IPP infrastructure permitted and operating, and a long interconnect queue that will not disappear,” said Rick Pederson, chief strategy officer at Bow River Capital.

(Reporting by Kavya Balaraman and Sumit Saha; editing by Nathan Crooks and Saumyadeb Chakrabarty)