AI Data Centers Are Reshaping Load Forecasts, but Risks Remain for Utilities and Their Investors, Says AlixPartners’ David Hindman

View From the Market

By Patrick Fitzgerald

For the past 30 years, utilities have more often than not seen slow load growth with execution risk, but today they are becoming fast growth due to the massive compute required for AI applications with customer-concentration, delivery and social license risk, according to David Hindman, global head of power and renewables at AlixPartners.

“The positive for utilities is that they are enjoying sales and rate base growth like they haven’t seen in decades,” Hindman told Octus. But, he said, there are still several risks emerging that investors should be paying attention to. First, there is forecast risk, as direct current operators are applying to build the same capacity in multiple jurisdictions, and basing site selection on a variety of factors, including the timeline of interconnection requests.

“For utilities this means that their 5 GW DC load increase forecast could come in at 2 GW or at 10 GW,” Hindman said.

Second, capital recovery is running into affordability concerns.

“A political game becomes even more political – if utilities socialize grid upgrades for hyperscalers onto residential customers, the public and regulators will push back,” Hindman explained. “A mitigating factor here are cost-allocation models that are emerging that push most, or all of the incremental costs to the hyperscaler who seem to be okay in absorbing it.”

Third, there remains execution and supply chain risk related to transformers, breakers, substations, transmission, firm capacity, qualified technical labor, land, permits and interconnection studies needed at a pace the industry is not used to. Hindman noted break points at various spots in the supply chain that are already being seen with utilities competing against each other in a way that has not been seen before.

“On balance, we view this as a net positive for utilities [with] the winners being utilities and infrastructure platforms that can convert increasing AI load into contracted, credit worthy, rate-base-accretive growth without saddling existing customers with [much] higher bills and stranded-cost risk,” Hindman said. “The losers are those that chase headline load growth without firm customer commitments, cost-allocation protection, and poor capital planning or supply chain execution.”

On the political side, uncertainty around the Inflation Reduction Act, or IRA, has pushed renewable energy developers to change how they talk about and structure capital raises.

“Instead of pitching against a guaranteed 10‑year incentive runway, they now have to show that projects still work if incentives are reduced or reshaped,” Hindman said.

You can see this in three main shifts, Hindman explained. Firstly, what comes to market and when, as developers are fast‑tracking late‑stage projects that clearly qualify under today’s rules and slowing early‑stage greenfield projects where policy risk is highest. Second, how deals are structured, in that there is less reliance on simple tax‑credit transfer deals and more use of traditional tax‑equity, tighter underwriting on eligibility, and explicit “change‑in‑law” protections in term sheets. Third, how portfolios are positioned. Sponsors, Hindman said, are favoring projects with multiple bonus pathways and long‑term offtake, so the story to investors is “durable contracted cash flow with upside from the IRA,” rather than a binary bet on tax credits.

Additionally, Hindman and his team wrote a few months back that cyber risk for utilities has become an operational and financial issue, not just a technical one. As for how boards and investors should be pricing that in, Hindman said that the shift AlixPartners flagged in April now shows up on the income statement and in the rate case.

“Utility cyber risk used to be a CISO compliance item – today, it’s a reliability, regulatory, and capital exposure item – so it belongs to the board and investors, not just the security team,” he said.

Boards should govern cyber threats as an enterprise risk rather than an IT issue: There should be board-level accountability, OT-specific scenario testing and a hard number on what a multiday operational outage or a stalled modernization program actually costs,” he said. “The reason is concrete: State-aligned actors are pre-positioning inside U.S. grid networks for disruption, and regulators now scrutinize cyber readiness the way they scrutinize storm response.”

A weak program threatens prudent recovery on billions in grid-modernization capital, Hindman said, stating that investors should underwrite three things in diligence: the quality of OT segmentation and monitoring, not just IT; whether cyber and modernization spend is rate-recoverable or a drag on returns, as well as incident-response maturity because of federal disclosure rules, and the reputational hit start the moment an incident is deemed material.

“Put simply, cyber resilience is becoming a credit and valuation input for utilities, the way storm hardening already is,” Hindman said. “The companies that can demonstrate it will defend their rate cases and their multiples.”

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