Don’t Get Left Behind: New Electricity Imperative for Electric Customers in the Age of Hyperscale Data Centers

Key Takeaways

• A recent, dramatic increase in hyperscale data center development, for which demand is expected to double in the next five years, carries major implications for companies spanning a range of industries.
• By optimizing battery energy storage systems, companies can reduce energy costs and resource needs, as well as take advantage of revenue opportunities.
• However, new entrants to the battery energy storage system market should be prepared to manage risks associated with safety and permitting requirements, commercial and regulatory uncertainty, and the potential for changing tariffs, among others, any of which can derail the development of your battery project.
• Companies ready to manage those risks and purchase or develop battery energy systems should be knowledgeable with respect to performance requirements and guarantees, tax credit eligibility and requirements, the timing and costs of commitment of construction and installation, continued operation and maintenance requirements, and more.

The rapid expansion of hyperscale data centers—driven by the United States’ ambition for global leadership in AI—has fundamentally altered the electricity landscape in the United States. For sophisticated commercial and industrial (C&I) participants, especially those with transmission-connected facilities, the stakes have never been higher. Meeting data centers’ surging electricity demand has become a national priority. But after decades of relatively flat demand, an intense focus to accommodate the newest and highest loads could affect other sectors of the economy, which still need reliable, affordable electricity to power the nation’s manufacturing and service sectors.

In this environment, a new reality is emerging for traditional large electricity users—one in which all commercial and industrial electric customers have a stake in managing the nation’s electric grid. While that may seem a burden, savvy in-house and corporate energy managers see an opportunity for risk mitigation and revenue generation. 

The AI Revolution and Rising Electricity Demand

For the period between 2007 and 2019, electricity load growth in the United States was largely flat year over year. Since 2019, however, a boom in crypto, video streaming, and large language models has spurred a surge in the development of hyperscale data centers, which consume large amounts of electricity and water. The National Association of Manufacturers forecasts overall electricity demand in the United States to increase by 25% between 2025 and 2030. According to the Pew Research Center and other experts, electricity demand for data centers alone is projected to more than double by 2030.

This rapid expansion has implications for interconnection, transmission planning, and capacity across the grid. By 2030, the United States will need to add as much as 100,000 MW of peaking capacity to the grid, with 50,000 MW attributable to data centers alone.

Siting data centers is a function of pricing inputs, including land, labor, and the price and access to electricity, and not simply where the tech companies or consumers are located. This means the surge in electricity demand isn’t limited to Silicon Valley or Northern Virginia; it’s literally everywhere, from Texas to Wisconsin, Oregon to Georgia, New Mexico to New England.[1]

This nationwide “electric generation gap” keeps utilities, grid operators, large load customers and policymakers awake at night. Utilities nationwide are scrambling to add new generation and transmission resources, and large load customers are partnering with utilities, developers, and policymakers to identify creative solutions to ensure grid reliability is maintained. 

All of this means companies and their in-house counsel should be intensively thinking ahead to understand the changing rules (and opportunities) around electricity procurement and how to make the best use of their limited resources. Careful planning can ensure a reliable—and affordable—long-term supply of the most important input to their business: electricity. 

Battery Energy Storage Systems: A Strategic Solution

Reducing Electricity Costs and Enhancing Reliability

When faced with rising energy and demand charges, battery energy storage systems installed “behind the meter” for primary use by transmission-connected commercial and industrial facilities, especially those in regulated electricity markets, offer a powerful tool to manage costs and hedge against unreliability. By discharging stored energy during peak demand intervals, large batteries can “shave” facility electricity usage peaks, directly reducing demand charges. These demand charges are typically based on the highest amount of power consumed at a site at any single point in time during a billing period and are often the largest component of a manufacturer’s electric bill. Under the right economics, installing a battery system can mean real savings for your company.

Reducing Utility Resource Needs and Rate Pressure

Electricity markets typically operate based on supply and demand, with electricity prices higher during times of grid stress (e.g., during a hot day or a winter storm) and lower at night or during mild weather. In some jurisdictions and markets, regulators and transmission and distribution utilities already have an interest in your company’s installation of a battery system, which the utility can use to reduce stress on the grid and generate revenue by integrating customer-sited battery power into grid services like frequency regulation, demand response, or capacity markets, further offsetting system costs. 

As just one example, Texas enacted SB 6 in June 2025, requiring the Public Utility Commission of Texas (PUCT) to adopt interconnection standards for “large load” customers that request a new or expanded grid connection at a single site in the Electric Reliability Council of Texas (ERCOT) region in excess of 75 MW (though the PUCT may reduce that MW threshold in implementing SB 6). In certain circumstances, ERCOT may direct large load curtailment or deployment of on-site backup resources during firm load shed events. When deployed at scale, large-scale batteries can reduce system peak demand, deferring the need for utilities to invest in new generation, transmission, or distribution infrastructure. These avoided costs help mitigate upward pressure on rates for all customers, including residential ratepayers. Indeed, many data center hyperscalers are investing in significant battery storage systems and other resources behind the meter of their large load campuses for this very reason. 

Revenue Opportunities

Sophisticated operators can monetize the benefits of these battery energy systems through participation in electricity market “demand response” programs, earning payments for curtailing load from the grid or injecting energy back into the grid during grid stress events. Additionally, batteries can be used for energy and capacity market arbitrage—charging batteries when prices are low and discharging when prices spike. In the ERCOT, California Independent System Operator (CAISO), and PJM markets, large commercial and industrial sites have already successfully bid batteries into ancillary services markets, generating new revenue streams and supporting grid reliability.

Legal, Regulatory, and Commercial Risks

While there can be many benefits to installing a battery system, before diving headlong into the battery energy storage market, in-house counsel should consider the following risks to help their client determine whether a battery energy storage system is right for their business.

• Safety and permitting. Most batteries use lithium-ion chemistry, which requires robust fire protection, emergency response planning, and compliance with local codes. Permitting processes can be complex and ever-changing, especially for large installations, with states rapidly adopting enhanced fire protection standards for battery energy storage systems. This risk is heightened in fire-prone areas like California and the Desert Southwest.
• Energy market knowledge and sophistication. Effective participation in energy and capacity markets demands deep market knowledge and sophisticated controls. The risk is compounded by the significant differences between regional markets, particularly those that have organized electricity markets run by regional transmission organizations and those that do not. This means that what works for one installation in Illinois, for example, may not work for another installation at a different site in Oregon. Facilities lacking access to this expertise may struggle to optimize battery operations or comply with market rules, risking lost revenue or regulatory penalties. Consider using an energy market consultant to assist with energy market participation, and ensure your in-house legal team has experience in the relevant market rules when shaping contracts.
• Utility tariffs and interconnection. Some utilities have restrictive tariffs or lengthy interconnection processes for behind-the-meter batteries (depending on size, for example), which can erode project economics or delay commissioning. Also, some utility C&I tariff rates may not fully recognize the value of peak shaving or may impose standby charges that offset or erode savings. Interconnection studies, which are typically required to interconnect a battery system, may also reveal costly upgrades or require protracted negotiations with the utility on the timing and cost of the upgrades. A careful review of your utility’s tariffs and rules is critical to understanding the legal and regulatory risks of investing in a battery.
• Commercial risks. Uncertainty about future tariffs has led to wide fluctuations in battery system pricing. Manufacturers and suppliers often include risk premiums or escalation clauses in contracts to hedge against possible tariff increases, making it difficult for buyers to lock in firm prices. Further, the primary raw material for these battery systems—lithium—has seen significant price volatility in recent years, which can significantly affect the economics of battery projects and often result in contractual provisions for “price indexing” the lithium carbonate metals market. In short, timing isn’t everything, but it counts for a lot. Savvy counsel will advise their internal clients to monitor lithium price declines to improve project economics.
• Supply chain. Sophisticated buyers of battery energy storage systems know that demand for batteries in the current environment is high and only rising, and that scarcity will drive pricing and supply chain risk. Battery manufacturers can be expected to demand pre-contract execution reservation payments or similar fees to hold the buyer’s place in the manufacturing line for the equipment. In-house counsel should be prepared to contract quickly and efficiently with the equipment manufacturer to capture their production slot, avoid forfeiting any reservation payment, and ensure timely delivery to the site.
• Regulatory uncertainty. FERC is in the middle of a rulemaking process for large load interconnections, including a process for “hybrid” facilities with both load and generation, which may induce companies to install behind-the-meter batteries at new facilities to mitigate or avoid more costly interconnection requirements. In addition to Texas, given the recent stress on the grid, a growing number of states strongly incentivize, to the point of effectively requiring, new loads to install onsite load-modifying resources like batteries and/or participate in demand response programs as a condition of interconnecting to the grid.

Critical Considerations When Purchasing and Developing Battery Systems

If your company decides that it is ready for a battery system, then the next step is surveying the market through a request for proposals (or similar procurement process). But contracting for these battery systems is not for the uninitiated. To maximize the benefits and minimize the risks of buying a battery system, sophisticated in-house counsel and their internal clients should consider the following when negotiating commercial contracts for the system:

• Battery supplier credit review and performance assurance. A battery supplier’s bankruptcy can upend a project, leaving you with partial equipment deliveries, a contract dispute, and a scramble to find an alternative supplier to keep the project moving. To mitigate the risk of a supplier’s financial stress or bankruptcy, buyers should perform a credit risk review and ensure that battery suppliers offer bankable guarantees or credit support with straightforward, clear conditions for draw and the ability to take assignment of subcontracts at the first indication of financial distress. Failure to secure these robust contractual protections can expose facilities to unexpected costs, eroding the value of the investment and risking a failed project and sunk costs.
• Tax credit eligibility (Section 48E). While the current administration may disfavor renewable energy as a policy matter, large-scale battery systems have received somewhat more favorable treatment. The federal investment tax credit (ITC) under Section 48E, mostly left intact by the Trump administration in the One Big Beautiful Bill Act, can offset up to 30% (or more, with bonus credits) of eligible project costs. But key eligibility requirements apply. Buyers must ensure that battery installers and suppliers pay prevailing wages to laborers performing construction or repair and that they make good-faith efforts to hire apprentices. Buyers should also be aware of complex prohibited foreign entity restrictions, which effectively require that a significant portion of the battery components and raw materials not be sourced from companies subject to the jurisdiction of the Peoples’ Republic of China,[2] where the majority of these raw materials, critical minerals, and components are produced, and other designated countries.
• Timelines for construction and commissioning. As a condition of federal tax credit eligibility, IRS statutes and rules (recently amended under the One Big Beautiful Bill Act) require that construction begins before statutory deadlines, and the battery system must be placed in service within prescribed timeframes. Delays can jeopardize tax credit qualification, so your commercial contracts for the battery system should impose clear deadlines with liquidated damages for failing to meet those deadlines. In addition, lithium batteries begin the slow process of degradation the minute they’re off the assembly line, so any protracted delays between manufacturing and installation can erode their economic value.
• Performance guarantees and warranty support. To achieve the battery’s value proposition, it has to perform when it is needed. Contracts should specify minimum round-trip efficiency, energy capacity, and availability and degradation rate guarantees, with clear, enforceable remedies for underperformance. Bankable warranties are a must, and buyers should conduct technical due diligence on suppliers’ track records of delivering completed, successful projects.
• Operation and maintenance (O&M). Not all commercial and industry energy users have the staff and expertise to perform O&M on battery assets and prefer to lean on experienced O&M contractors. Long-term O&M agreements should address routine maintenance, software updates, and emergency response, with clear allocation of responsibilities and costs. Buyers should ensure that O&M providers have the expertise and resources to support battery energy storage system O&M over the system’s life. The good news is that most battery suppliers also offer O&M services, so be sure to solicit bids for that scope when going out to the market.
• Market participation strategy. Counsel should consider whether the company should engage an energy consultant or aggregator devoted to operating the battery in energy and capacity markets and maximizing revenue to the company. If so, these contracts should address data sharing, dispatch rights, and revenue allocation.
• Site-specific risks. In tandem with commercial contract negotiations, environmental, zoning, and community engagement issues can delay behind-the-meter battery projects. To ensure a smooth local permitting process, buyers should conduct thorough site assessments and engage stakeholders early in the process, including local governments, public safety, and zoning officials.

Conclusion

In this era of rising electricity demand and costs, all transmission-connected facilities, not just data centers, can be part of supporting the reliability of the electric grid. High-performing in-house counsel are proactively understanding opportunities for battery supply and installation, utility tariff and interconnection requirements, energy market rules, and IRS guidance to diversify their sources of electricity and unlock new revenue streams. Doing so can help ensure that as electricity becomes more scarce and more costly, your company will be well positioned to manage its costs and ensure reliable electric service.

Endnotes

[1] Evan Halper and Niko Kommenda, “Supersized data centers are coming. See how they will transform America,” WASHINGTON POST (Dec. 15, 2025). Access to this article requires a subscription.

[2] 26 U.S.C. §§ 48E, 7701(a)(51) and (52).