‘Power Islands’ Tap High-Yield Market as AI Data Centers Go Beyond the Grid

For years, leveraged finance investors knew Solaris Energy Infrastructure as an oilfield logistics provider. Now it’s in the business of powering AI. Solaris shifted to behind-the-meter power generation in the past couple of years and has issued over $2.5 billion in bonds this year, making it one of a handful of high-yield bond issuers to tap a fast-growing corner of the AI buildout: on-site plants known as “power islands” that keep data centers running without waiting on the grid.

The expected supply of high-yield issuance in the behind-the-meter, or BTM, space follows the massive electricity demand from data centers and the strain it could put on existing power grids, according to market participants interviewed by Octus.

A Surging Energy Need

Enverus, an energy data analytics platform, projects that 25.5 gigawatts, or GW, of energy demand will be served by behind-the-meter generation from 2026 to 2030, of which 88% will be driven by demand from data centers. Demand for BTM power in strained areas such as the PJM power grid, which covers the mid-Atlantic region, and ERCOT grid, which covers Texas, is expected to represent half of new BTM demand. For context, Goldman Sachs expects U.S. data center power demand to reach 66 GW in 2027.

“Politically, it gets tougher to tap power from the grid because of the perception that it drives up electricity rates for consumers, so [behind-the-meter] is an insurance play to make sure they are not constrained by either political or other constraints,” said Grant Moyer, head of leveraged finance at MUFG, on the demand for BTM power.

The pushback is already playing out. In the summer, NV Energy, Nevada’s energy utility, sued data center developer Tract, alleging the company would use large amounts of power for its own development while shifting costs onto Nevada residents and businesses. Last month, Nevada regulators approved two Tract gas power plants that will provide more than 360 megawatts, or MW, of on-site power generation, according to a local news report.

While high-yield financing for AI infrastructure power has lagged data center financing, power companies are increasingly tapping the high-yield market to fund the construction of behind-the-meter power generation, according to Kirk Roland, head of power debt capital markets at Citi.

“We need to build additional power to provide for these new users of power coming online, and that’s an inexorable megatrend that debt investors like getting behind,” Roland said.

The First Wave of Deals

“[Behind-the-meter power] is new for the high-yield market,” said Alina Golant, a high-yield energy strategist at SMBC, highlighting at least four issuers that recently tapped the market for BTM.

Solaris came to market last month with upsized $1.25 billion 7% senior notes due in 2032 to fund capital expenditures in the development of on-site power generation for data centers. It was the second time the company issued high-yield debt this year, following a $1.3 billion 6.375% note offering in May.

While new companies that were created specifically for on-site data center power, such as Tacanock and Thunderhead Energy Solutions, are entering the space, most behind-the-meter high-yield issuers so far have pivoted from another business.

Serial high-yield issuers, such as natural gas compression company Kodiak Gas, have led the pivot into behind-the-meter power, as they repurpose equipment and turbines to power data centers. This year, Kodiak acquired Distributed Gas Solutions to expand its platform “into distributed and behind-the-meter power generation,” according to a press release.

VoltaGrid, which began supplying mobile power to oil and gas operators before expanding into behind-the-meter generation for hyperscalers, was among the first companies in the sector to tap the high-yield market. In November 2025, VoltaGrid raised $2 billion of second lien notes due 2030 and a $3 billion asset-based revolving facility to fund its ongoing growth initiatives in the sector.

“[VoltaGrid] established the concept of the high-yield market financing these businesses that have stable, contracted long-term off-takes with hyperscalers themselves, co-located at data centers,” said Nick Fall, head of North America leveraged finance at Barclays.

But the field is now widening, Citi’s Roland said, as independent power producers, bitcoin miners and distributed generation companies are also pursuing deals. Multiple other issuers outside the oilfield services group are considering high-yield financings to power data centers over the next six months, he added.

The appeal of these deals to investors is that operators are signing long-term, take-or-pay contracts with data centers and hyperscalers, which means investors get paid almost regardless of how the AI buildout pans out, according to SMBC’s Golant. A buy-sider noted that these contracts offer cash flow visibility, while still paying investors a premium for the execution risk.

Behind-the-Meter Finds a Home in High-Yield

Despite having less of a track record and initially lower credit ratings than established energy names, BTM operators have solid contracts with off-takers, Barclays’ Fall said. If projects are built on time and phase in as planned, their cost of capital should eventually converge with that of larger power players, he added, calling these projects “mission-critical to the success of the whole data center ecosystem.”

“The high-yield market has been a very hospitable place for the overall power demand theme […] and it’s one of the first in the broadly distributed capital markets to be used for these buildouts,” Fall said.

Given their early-stage development, these deals price wider than benchmark high-yield power names.

For issuers, high-yield is flexible with fewer construction milestones and restrictive covenants than project financing, according to Fall. Roland said that developers are also counting on the bonds’ call option to refinance construction debt at a lower cost once projects are operating.

Options are immense for data center power buildouts, noted Aashish Mohan, head of energy, resources and infrastructure, Americas global capital markets, at BNP Paribas. After structuring deals for data centers and behind-the-meter facilities, banks can offer clients many pools of liquidity: the floating-rate bank market, the IG bond market (144A or USPP) or the high-yield bond market.

“We’re seeing a dispersion of solutions as the range of participants looking for financing grows,” Roland said. “But there is, without question, more high-yield financing for power for data centers in process now than there was, and there will be even more looking forward.”

Execution and Regulatory Risk

Despite expectations for growth in issuance tied to behind-the-meter power, the emerging sector is not without its hurdles. Developers still need to conduct diligence on the technology provider, fuel needs, pipeline access and permitting, a banker noted.

The main risk is getting projects built. That means scrutinizing termination clauses: whether the off-taker can exit, how many days of construction delay allow it to walk away and whether it can claim credits back from the developer, sources added.

Execution is the other concern, as some issuers are not fully ramped up yet. “Part of the challenge is the availability of turbines and other necessary machinery,” MUFG’s Moyer said, adding that investors want to know how developers will build and what access they have to equipment.

Other factors include who the off-taker is and whether the project can deliver power on schedule, the buy-sider added. They also noted that there is technology and residual-value risk, particularly if the contract expires before the debt matures.

Regulatory risk is growing too. In August, Texas Gov. Greg Abbott ordered an audit of data centers seeking grid connections, and in September he directed the state’s environmental regulator to halt data center permits until the audit is complete. Views vary on whether the halt applies to behind-the-meter gas plants, which the regulator also permits, and some suggest it could reach developers.

From Corporate Bonds to Project Bonds

Fall said he expects a real ramp-up in behind-the-meter high-yield issuance over the next year, since power is the big limiting constraint in the data center buildout.

The structure of the offerings could also evolve. Financings are likely to shift toward site-specific buildouts, with a separate special purpose vehicle for each project, which is expected to drive a lot more issuance, Fall added.

“What will be the next evolution in the high-yield market is when you start to see project financing high-yield bonds done for power for data centers […] and you will see that roll out, I’m going to say certainly within the next six months, if not a lot sooner,” Roland said.