• Rising AI-driven demand for powered land is outpacing supply and increasing financing needs
• Private lenders fund equipment reservations and interconnection efforts banks often avoid
• Many private lenders now seek equity upside and greater project decision-making influence

As costs have begun to scale rapidly for powered land developers, private credit has emerged as a viable financing solution for these platforms.

The powered land industry has emerged in recent years as the power demands of hyperscale data centers, driven by AI learning and inference centers, increased beyond 100 MW. This required expertise at the ground level involves permitting land for power, securing the large load request from the utility, and, in some cases, building power generation and capacity — all in alignment with the power needs of the data center, where campus plans are usually rolled out in multiple phases.

The speed-to-power ratio has also presented more of an opportunity for powered land developers willing to build behind-the-meter power to avoid interconnection queue backlog, despite heightened risks such as single-tenant exposure associated with those projects.

The accelerated timeline has manifested itself in ERCOT’s Batch Zero proposal, where officials of the regional grid operator said recently that 100 GW of large-load requests could qualify for inclusion in it “Batch Zero” interconnection study before a further screening for financing commitments, site control and other project-readiness narrows the field.

The private credit market, as a result, has come in early during the financing stage to mitigate risks related to construction timelines and power availability, said industry experts. This comes as banks are reticent to absorb the higher cost and heightened risk associated with some of these projects.

Private credit lenders are asking sponsors for higher premiums and getting more involved in the decision-making of projects than ever before. This can include providing more strategic input around project assets and taking an equity stake in projects to potentially gain higher returns.

“Sponsors now require more capital than usual to secure equipment or to address power generation needs. Banks are often hesitant to take on these higher costs and financing risks, and private credit is willing to take over,” said Mona Dajani, Partner at Cooley LLP, in an interview with NPM

Recent examples included Elda River Capital Management participating in the financing of Black Mountain’s buildout of powered land for data centers. Another private credit shop, Overlay Capital also recently financed Belltown Power’s utility assets co-located with data centers.

There are also instances where developers with larger balance sheets are able to finance their data center and power generation under one umbrella as EdgeConneX priced a USD 3bn project finance loan earlier this spring to support two energy centers and a data center in Ohio linked to Meta. In this instance, EdgeConneX was building the data center, while its PowerConneX platform was developing power generation projects.

The use case

When it comes to equipment, private credit is increasingly supplying funds for sponsors to secure their spot to attain assets, which is something the market hasn’t historically seen.

“They’re coming in to provide financing to a project so that that project can continue to make payments for their supply under reservation agreements, so they do not lose their position in line for a turbine or for interconnection,” said Kelann Stirling, a partner at Paul Weiss.

Securing equipment is not the only challenge for sponsors – markets like PJM and ERCOT are becoming too crowded with new data centers and powered assets, which has been leading to longer interconnection queue timelines and creating higher risks for financing, say industry experts.

This has in turn led to sponsors attempting to gain financing packages early on to get queue applications in early, which could mean they gather financing and submit queue details before even signing long term PPAs for the project.

Another risk private credit is taking on by financing projects early is the uncertainty around what power pricing will look like once a project is complete.

Over the last year, power prices have varied across different markets – spiking to USD 270MW/day in PJM yet falling to between USD 116 to 126MW/day in MISO, according to NPM reporting.

There is market consensus that there is varied range in pricing, even within individual markets. The wide range creates additional risk for project lenders, as they may win big or lose big depending on where assets are located. Tenants require long-term visibility on operating costs, which puts a tough burden on developers to estimate accurate lease rates or justify high upfront capital needed for infrastructure.

“The uncertainty bounds are incredibly wide,” said Peter Gardett, CEO at Noreva AI, an advisory platform that provides pricing, data and forecasts for projects.

Pricing diligence

Financing projects with higher risks comes at a price, and for the private market, that includes higher premiums on loans.

Private credit often requires a material premium to bank debt, commonly in the SOFR + 150-300 bps range or more depending on the collateral, tenant quality and power certainty, said Dajani. The EdgeConneX deal, though arranged by a banking syndicate, was priced wider than traditional hyperscale deals at SOFR+250bps do to the gas project risk.

For certain early-stage financing that requires significant power, interconnection or development risk, Dajani said that the private credit premiums may reach as high as SOFR + 500 to 700 bps.

Private credit is also using other tools other than higher premiums to generate returns for risks they are undertaking — such as taking on equity in powered land projects to lock in higher returns.

“In certain cases, you see private credit tapping into these ‘equity sweeteners’ where they get project equity at a fixed price so that if the project goes well, they can participate in the upside,” Stirling said, though she did not detail any specific examples.

Another thing private credit is doing is becoming more involved in the decision making of assets after funding them. This could include actors directing the specific use of assets or taking an ownership stake on the board of the sponsor, for example.

Stirling noted that this is increasing as there is more diversity of private actors in the infrastructure space than before, like rise of real estate investors or insurance investors who are more used to these types of structures within their industry.

“They have sort of an owner mentality, they care about the assets,” said Stirling. “They like to be involved in the decision making. So, anything that gives them that opportunity is an asset they are interested in.”