What a data center needs to connect to the grid: steps and costs

A data center needs a place on the grid, a studied connection plan, a signed service contract with financial backing, and the physical equipment: substation, transformers, breakers and lines. The paperwork often takes longer than the building. Reported transformer waits now run to years, and tariffs can bind a customer to pay for 12 years.

What follows walks through the sequence in plain language, with dated 2026 figures and their sources. The sequence itself is a general description, because utilities and regions differ.

Key numbers at a glance

• 110 GW: projected US data center capacity in 2030, up from about 24 GW then current (Wood Mackenzie, as reported by Reuters on 9 July 2026).
• 4.4 percent: share of US electricity used by data centers in 2023, with a projected 6.7 to 12 percent by 2028 (US Department of Energy, summarizing a Berkeley Lab report, 20 December 2024).
• 176 TWh: US data center electricity use in 2023, up from 58 TWh in 2014, with a projected rise of 325 to 580 TWh by 2028 (same DOE summary).
• About 945 TWh: International Energy Agency projection for global data center electricity use in 2030, more than double the current level (IEA, 10 April 2025, as reported by the American Public Power Association).
• Over 160 weeks: lead time for generator step up transformers by the first quarter of 2026, versus an average 143 weeks in 2024 (Reuters, 9 July 2026, citing Wood Mackenzie).
• 125 weeks: lead time for high voltage circuit breakers in the second half of 2025, up from 77 weeks in 2023 (same Reuters report).
• Up to 4 years: lead time for high capacity transformers (PwC analysts, as reported by pv magazine USA, 11 May 2026).
• About 80 percent: unnamed industry experts' estimate of transformer price increases over five years (same pv magazine report).
• 25 MW, 85 percent, 12 years: the AEP Ohio data center tariff threshold, minimum billing share and maximum term (Public Utilities Commission of Ohio order of 9 July 2025, as reported by POWER magazine).
• $100,000: minimum Texas screening study fee under Senate Bill 6 (enrolled bill text).
• 100 percent: share of assigned network upgrade costs DOE proposed large loads should pay (DOE letter, 23 October 2025).

First, how big is a large load

A modern AI data center campus can draw from tens of megawatts to over a gigawatt. A megawatt is a million watts. A gigawatt is a thousand megawatts, roughly the output of a large power station. Different documents draw the line at different sizes for what counts as a large load: 20 MW in the Department of Energy's proposal, 25 MW in Ohio's tariff, 50 MW in FERC's preliminary June 2026 definition, and 75 MW in Texas. Below those lines, a customer is usually handled by its local utility's ordinary process.

The demand picture explains why these loads got attention. The Department of Energy summarized a Berkeley Lab report in December 2024 saying data centers used 176 TWh in 2023, or about 4.4 percent of US electricity, and could reach 6.7 to 12 percent by 2028. The IEA projected in April 2025 that global use would reach about 945 TWh by 2030. These are projections, and they have moved with each edition, so treat them as ranges.

Step by step: how a connection usually runs

Utilities and grid operators each have their own forms, but the shape is similar. This is a general outline, not any one utility's rulebook.

Step 1: Pick a site with power in mind. Developers increasingly start with where capacity might exist, not with land. The grid operator's study will test a specific substation or line, so the site and the connection point are chosen together. FERC's June 2026 orders mention electrically proximate load, defined as within two substations of a generator's connection point, as a case that may get special treatment.

Step 2: Screen the request. The customer files a request stating location, megawatts and timing. A first study checks whether the idea is plausible. In Texas, Senate Bill 6 sets a flat fee of at least $100,000 for this stage and requires applicants to disclose similar requests elsewhere in the state.

Step 3: Study the impact. The utility or operator tests whether adding the load causes overloads, voltage problems or stability issues, and what upgrades would fix them. FERC's June 2026 orders contemplate initial results in 60 to 90 days, per Vinson and Elkins. DOE asked whether studies for curtailable loads could be done in 60 days. Real timelines vary by region, and no public source gives a national average.

Step 4: Agree who pays and post security. The result is a list of upgrades and a cost. Customers are increasingly asked to put money or credit behind it. The FERC orders contemplate a pro forma cost recovery agreement with a minimum contribution, credit support such as a letter of credit, surety bond or cash, and a mechanism returning amounts paid over time.

Step 5: Sign service agreements. Besides the connection agreement there is a power supply or service contract. This is where tariffs and minimum bills come in, covered below.

Step 6: Build. The utility builds or oversees a substation, transmission line extensions and often a dedicated feed. The customer builds its own switchyard and internal electrical systems. Equipment lead time is the main risk, covered next.

Step 7: Energize in phases. A big campus rarely takes full power on day one. Power is brought on as halls and cooling come online, and the contract often has a ramp schedule.

The physical equipment, and why it is the bottleneck

A transmission line carries power at very high voltage. A substation steps that voltage down for use through large transformers, and breakers protect the equipment by cutting a fault. A data center needs these at two ends. The utility builds the upstream pieces, and the data center owner builds its own on the campus.

Reuters reported on 9 July 2026 that transformer shortages have persisted for about five years since post pandemic demand rebounded faster than supply. Citing Wood Mackenzie, it said generator step up transformer lead times passed 160 weeks by the first quarter of 2026 versus an average of 143 weeks in 2024, and high voltage circuit breaker lead times reached 125 weeks in the second half of 2025, up from 77 weeks in 2023. It said some high voltage transformers now take multiple years, versus about one year in 2020 and 2021, and that transformer costs could rise roughly 4 to 10 percent over the next year depending on type.

The same report describes how buyers adapt. Roseville Electric Utility in California, which used to order about a year ahead, now plans on a three year horizon and buys large substation transformers about five years in advance. About three quarters of its bids come from foreign suppliers, such as those in China and South Korea, because domestic suppliers typically quote longer lead times and higher prices, according to its chief executive. Other responses include refurbishing older transformers, paying up front to secure production slots and splitting orders across suppliers.

pv magazine USA, on 11 May 2026, reported Wood Mackenzie data showing demand for generator step up transformers up 274 percent from 2019 to 2025 and substation transformers up 116 percent, PwC analysts putting high capacity lead times at up to four years, and manufacturers adding capacity, including a Hitachi Energy investment of over $1 billion with a South Boston plant due online in 2028, and a $421 million Siemens transformer factory in Charlotte. Those are company commitments as reported.

The practical lesson is that a data center developer who waits for the studies to finish before ordering major equipment is already late. Some developers order at risk. Others try to use existing sites, where a substation and transformers are already in place.

Who pays, and what the contract looks like

Two cost questions matter: who pays for upgrades, and what the customer must pay even if it uses less power than planned.

Upgrades. DOE's October 2025 proposal said loads and hybrid facilities should be responsible for 100 percent of the network upgrades they are assigned, with comment sought on crediting part of the cost back over a number of years. FERC's June 2026 orders ask regions to disclose planned upgrades, estimate costs and report actual versus estimated.

Minimum bills. The best documented example is AEP Ohio. According to POWER magazine's report on the Public Utilities Commission of Ohio's order of 9 July 2025, new data center customers above 25 MW must pay for at least 85 percent of subscribed monthly capacity regardless of actual use, for up to 12 years, including a four year ramp up. The tariff includes financial assurance and exit fees, and existing facilities are exempt unless they expand beyond 25 MW. POWER also reported that before the order AEP Ohio had inquiries from more than 50 customers at over 90 sites totaling more than 30,000 MW, against data center load that grew from about 100 MW in 2020 to about 600 MW in 2024.

The reasoning behind minimum bills is simple. The utility builds for a customer's stated load. If the customer then does not use it, other ratepayers could be left with the bill. A minimum bill and collateral move that risk back to the customer. Texas's Senate Bill 6 reaches the same goal with financial commitment options such as per megawatt security.

Capacity costs. In some regions new load also raises the price of reliability for everyone. RMI's November 2025 analysis reports PJM capacity prices moving from $29 per megawatt day to the $330 cap in two auctions, and the total capacity bill rising from $2.2 billion to $16.1 billion. That helps explain why regulators want large loads to carry more of the cost.

Getting power without waiting for the grid

Because the grid is slow, developers look at other routes. Each has limits.

Co-location. Placing the data center at an existing power plant or next to a new one. DOE's principles would study such hybrid facilities by the amount they inject or withdraw and require protection equipment to keep them within agreed rights. In Texas, pairing an existing stand alone generator with a new large load triggers a 120 day ERCOT study and a 60 day PUC decision window. Compute Law Blog says FERC ordered PJM on 18 December 2025 to create four transmission service options for co-located load.

Behind the meter generation. Generating on site, often with gas turbines, and using the grid as backup or not at all. The grid operator may still ask for disclosure, and FERC's June 2026 orders list load with behind the meter generation as a reform area.

Bring your own generation. A load arranges its own new supply and is studied with it. The Keentel newsletter says ERCOT has filed rules for such arrangements, though it was unclear they were final.

Flexible service. Accepting limits in return for a faster start. We cover that in our post on curtailment and flexible load.

Power purchase agreements, or PPAs, are long term contracts to buy electricity at an agreed price, often from a specific plant. A PPA sets the price and source of energy. It does not by itself provide a physical connection, which is still the utility's job. That distinction trips up many readers of AI infrastructure announcements. Our explainers on OpenAI's compute commitments and Anthropic's compute commitments discuss gigawatt plans, and a gigawatt of plans still needs a gigawatt of connections.

A buyer's checklist

If you are evaluating a data center site, or a provider's claim that capacity is available, these questions are fair to ask:

• Is the power contracted, studied and agreed with the utility, or only requested?
• Which substation and voltage level will serve the site, and who owns it?
• Have the major transformers and breakers been ordered, and what is the delivery date?
• What is the ramp schedule, and what is the minimum bill if the ramp slips?
• Is any of the load curtailable, and under what terms?
• What happens if the connection date moves?

What is firm and what is uncertain

Firm:

• Reuters, citing Wood Mackenzie, reported generator step up transformer lead times above 160 weeks by Q1 2026 and breaker lead times of 125 weeks in H2 2025.
• Ohio approved a tariff with an 85 percent minimum, up to 12 years, for data centers above 25 MW.
• DOE proposed that large loads pay 100 percent of assigned upgrades; FERC's orders ask for cost recovery agreements.
• Texas SB 6 sets a $100,000 minimum study fee.

Uncertain:

• Typical study durations in each region. No public source gives an average.
• Whether DOE's 100 percent principle becomes binding.
• Whether manufacturers' announced capacity arrives on time, since these are company commitments.
• Demand forecasts, which have been revised repeatedly. The 110 GW projection for 2030 is Wood Mackenzie's, as reported.

What to watch next

• FERC's follow up to the June 2026 orders and any standard cost recovery agreement.
• Other states copying minimum bill tariffs.
• Transformer and breaker lead times in the next quarterly updates.
• Whether new factories announced in 2026 reach production on schedule.

For teams that run the software behind these buildouts, Safeguard offers SBOM and dependency scanning, and the free scan is at https://gold.safeguard.sh/scan.

Quick check

Sources

• Reuters via Kitco, "US power companies scramble to secure equipment as surging data center demand strains supplies," 9 July 2026: https://www.kitco.com/news/off-the-wire/2026-07-09/us-power-companies-scramble-secure-equipment-surging-data-center
• pv magazine USA, "U.S. transformer market faces severe supply constraints as lead times extend to four years," 11 May 2026: https://pv-magazine-usa.com/2026/05/11/u-s-transformer-market-faces-severe-supply-constraints-as-lead-times-extend-to-four-years/
• POWER magazine, "Regulator approves AEP Ohio's landmark data center tariff": https://www.powermag.com/regulator-approves-aep-ohios-landmark-data-center-tariff/
• US Department of Energy, report on data center electricity demand, 20 December 2024: https://www.energy.gov/articles/doe-releases-new-report-evaluating-increase-electricity-demand-data-centers
• American Public Power Association, report on IEA data center electricity projections, 11 April 2025: https://www.publicpower.org/periodical/article/electricity-demand-data-centers-worldwide-set-more-double-2030-iea
• US Department of Energy, Secretary of Energy letter and proposed rulemaking, 23 October 2025: https://www.energy.gov/sites/default/files/2025-10/403%20Large%20Loads%20Letter.pdf
• Vinson and Elkins on FERC's June 2026 show cause orders: https://www.velaw.com/insights/ferc-institutes-six-simultaneous-section-206-proceedings-targeting-large-load-interconnection-across-all-rto-iso-markets/
• Texas Legislature, Senate Bill 6 enrolled text: https://capitol.texas.gov/tlodocs/89R/billtext/html/SB00006F.htm
• RMI, "PJM's speed to power problem and how to fix it," November 2025: https://rmi.org/pjms-speed-to-power-problem-and-how-to-fix-it/
• Compute Law Blog, "How AI data centers connect to the grid": https://computelaw.blog/power/how-ai-data-centers-connect-to-the-grid-ferc-power-queue/
• Keentel Engineering, ERCOT Energy Market Update, July 2026: https://keentelengineering.com/newsletter/ercot-energy-market-update-july-2026

Last reviewed: 19 October 2026.