As the race to build out AI infrastructure heats up, developers are scrambling to secure power needed to support the next wave of computing capacity well before the data centers come online.
But getting access to power requires substantial upfront investment before many projects are ready to tap the project finance or debt capital markets. Private credit is increasingly emerging as a source of capital to fill that gap. From deposits for grid interconnection to orders for power-generation equipment, private lenders are financing some of the earliest and riskiest stages of the AI infrastructure boom.
Power availability has become one of the biggest constraints on the data center buildout. Developers face lengthy waits of up to several years to secure grid access and manufactured equipment, including turbines and other generation assets. Consequently, manufacturers and local grid operators are requiring payment upfront, leaving developers needing to commit capital well before the data center is operational and cash flowing.
“There is an insatiable demand for power, whether from grid interconnection or power generation equipment,” said Andrew Lanius, head of U.S. energy and infrastructure finance at A&O Shearman.
McKinsey estimates that investments in the data center infrastructure buildout are estimated to reach nearly $7 trillion by 2030, with roughly $1.2 trillion of that total toward power and related infrastructure, including electrical and power generation.
“That has created a big opportunity for private credit to come in and structure a loan that can help fund those upfront deposits and even later progress payments,” Lanius added.
Traditional project finance generally relies on a sufficiently developed project, with assets, permits and power arrangements in place. But financing needs tied to data center power are increasingly showing up much earlier in the development process, even in some of the very first steps. Private credit financing can step in through various forms depending on where a data center project is in development.
Energy Vault, for example, received a roughly $138 million senior secured private loan from Eagle Point in October to finance the procurement of 275 megawatts of reciprocating engines for data center infrastructure. The loan allows the company to make payments under an equipment supply agreement ahead of delivery, which is expected to begin in the second half of 2027.
In another example, Neuberger Specialty Finance provided Crusoe with a $700 million facility to fund the purchase of long-lead gas generators that will provide behind-the-meter power to its planned data centers. The facility is secured by recently ordered generation equipment.
“Private credit has been a huge addition to the capital pool. It has been particularly meaningful for newcomers who are prior to the phase where they’re able to tap project finance or the high-yield markets,” said Kirsten Harmon, partner at Vinson & Elkins.
“Different private credit bridge facilities can allow them to get to the next phase, which enables some players to access the market that otherwise would not be able to,” Harmon added.
Private credit has also become a relief valve for bank balance sheets, which have become strained over the last year as the size of individual AI-infrastructure deals have ballooned to several billion dollars each, according to one banker. As power financing requirements, specifically, have expanded and become riskier, private credit can often be a more flexible option rather than issuing debt broadly in the market via banks.
Other recent private credit financings are targeting the cost of securing grid access itself. For example, Texas finalized a rule in September requiring large-scale data center developers to pay $50,000 per megawatt upfront to get in line for grid power. Ahead of the rule implementation, Texas-based investment firm Dynamix Capital Partners raised roughly $95 million in financing backed by a credit partner to cover grid connection deposits for two data center owners.
More grid operators are expected to implement similar requirements for developers to save a spot in the potentially yearslong line for grid access while states conduct audits. With a tighter regulatory and political backdrop, private credit is positioned to step in where other markets will not, funding the deposits for projects that may never secure power.
“If a data center project doesn’t yet have a reliable power source, then the developer might go to a different market that’s willing to take on a different risk and structure for the absence,” Lanius said when comparing the project finance and private credit markets.
Power availability is one of the most important considerations in data center financing, market participants say, but financing future power capacity also requires investors to underwrite the risk of whether the future power supply will ultimately materialize.
“Power is a big part of the story. A data center without power is just a warehouse, so we’re trying to find opportunities where we are comfortable that we’re getting paid appropriately for power risk,” said Greg Leveto, a portfolio manager and partner at Oak Hill Advisors focused on asset-based finance.
As the data center supply chain and capital needs continue to grow more complex, financing will increasingly be tailored to the specific stages of development, creating room for private credit lenders to participate in emerging areas of the buildout.
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