PJM Plan Sparks Surge in Data Center Power Deals: Analysts Say

Understanding the New Power Grid Strategy

PJM Interconnection, which manages the largest power grid in the United States, has proposed a new plan to address the rising demand for electricity from data centers. This initiative could significantly influence how data-center owners and independent power producers (IPPs) collaborate, according to industry analysts.

The plan outlines a structure where new large power users must either bring their own generation capacity to the grid or operate under a "connect-and-manage" framework. This framework allows for scaling back power usage during emergencies, ensuring the grid remains stable even when demand is high. Additionally, the proposal includes fast-tracking a backstop power capacity auction to prevent potential shortfalls across PJM's service area.

While some aspects of the plan require regulatory approval, analysts believe that the "bring-your-own-generation" component could lead to an increase in major deals between data-center owners and IPPs.

The Impact on Data Center Operations

James West, managing director at Melius Research, predicts that the next few months will see a surge in announcements of significant data center-slash-power deals. These deals are expected to involve both independent power producers and big tech companies.

As U.S. electricity demand continues to rise, the Energy Information Administration's January outlook highlights a projected increase in power consumption in 2026 and 2027. This trend follows a record year in 2025, driven by the rapid growth of artificial intelligence. This surge has already prompted data-center operators to secure long-term power supplies.

For example, Talen Energy expanded its partnership to supply Amazon Web Services data centers with up to 1,920 megawatts of nuclear power. Similarly, Constellation Energy signed a deal with Meta Platforms to keep one of its nuclear reactors operational for another two decades.

Addressing Consumer Energy Prices

The increasing demand for power due to AI is also raising concerns about higher consumer energy bills. In response, companies like Anthropic and Microsoft have announced initiatives aimed at reducing the impact of data centers on consumer energy prices.

PJM recently began discussions on creating a backstop auction, which marks a step towards securing the necessary power to meet growing demand within its service area. Meanwhile, the administration of U.S. President Donald Trump has urged the grid operator to conduct an emergency power auction to enhance supply.

Analysts suggest that the risk of being involved in the proposed backstop mechanism gives data centers a stronger incentive to pursue direct deals with power producers. Those that do not bring their own power may end up paying for new generation without owning the energy, according to Andrew Rocco, stock strategist at Zacks Investment Research.

Potential for Consolidation in the Power Sector

This dynamic makes direct deals with IPPs more attractive and manageable compared to exposure to volatile PJM capacity prices. Some analysts expect the proposal to drive consolidation in the power sector, as smaller developers may lack the capital to navigate PJM's potential new requirements.

Rocco noted that larger IPPs such as Vistra, Constellation, or Talen may acquire smaller developers to create "mega-sites" that combine land, power, and fiber.

However, analysts caution that implementing the plan could face challenges, including permitting issues and state-level approvals. Rick Pederson, chief strategy officer at Bow River Capital, emphasized that while a "flurry of deals" is anticipated, real-world obstacles such as lengthy interconnect queues will remain.

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