Power Weekly: Why Power Buyers and Developers Need to Meet in the Middle

• The key theme at PowerUp: Data Centers – Investment was compromise between power buyers and developers.
• Buyers have wanted fully de-risked, ready-to-go projects before signing offtake agreements.
• Developers want offtake certainty, such as an LOI, early in the process so they aren't developing entirely on spec.
• Earlier or phased commitments from buyers, plus more on-spec development from developers, could close the gap.
• Because so much capital depends on offtake being in place, closing that gap could unlock financing, speed and decisions.

Stuart Pomeroy
Account Executive, Paces

What is the chicken-or-egg problem between power buyers and developers?

Large power buyers often want a fully de-risked, ready-to-build project before they sign an offtake agreement. Developers want a letter of intent (LOI) or offtake agreement as early as possible so they aren't developing entirely on spec. With each side waiting on the other, projects stall.

How can power buyers and developers meet in the middle?

Buyers can commit earlier, for example through phased agreements, giving developers more line of sight and less risk to raise capital against. Developers, in turn, can take on a bit more development on spec before a contract is signed.

Why does offtake matter for project financing?

Much of the capital available for power projects depends on offtake agreements and contracts being in place. Until they are, financing is hard to unlock, which slows development and decisions.

What were the takeaways from PowerUp: Data Centers – Investment?

Panels and conversations covered the permitting bill and interest rates, but the main theme Stuart heard from CFOs, lenders, investors and lawyers was compromise: bringing buyers and developers closer together to unlock financing and speed.

Hey. What's up, everyone? I'm Stuart. Welcome to another episode of Power Weekly, where we highlight the most important industry news and share our take on why it matters so that you can stay in the know on the go.

Reporting live from Washington, D.C., where I was for the Infocast PowerUp: Data Centers – Investment conference. It was a great three days, and I just need everyone to appreciate this piece of infrastructure, not energy related, that is Washington, D.C.'s Union Station. Beautiful. A great place to report in live.

So, lots of talk during the conference about the permitting bill, about interest rates, about different things that are headline news. But what I want to highlight is the one thing that was the key takeaway from this conference for me, which is compromise.

What I mean by that is most of the panels and conversations were with CFOs, CIOs, lenders, investors and lawyers. There's been this chicken-or-the-egg problem in the industry where power buyers have said, "Hey, bring me a fully baked, fully de-risked, ready-to-go project, and I will contract for that power. I don't want to do anything early. I don't want to take on any risk. Just bring me a project that's ready to go and fully baked, and I'll sign an offtake agreement."

And developers say, "Okay, well, I'm on the opposite side of that spectrum. I want as much certainty as early in the process as I can get, so that I have an LOI or some sort of offtake agreement in place before I start developing my project, so that I'm not doing it fully on spec." Those have been the two ends of the spectrum for a long time.

What I heard at the conference was that those worlds need to come closer together. They need to meet somewhere in the middle, where large power offtakers will say, "Yep, okay, I will sign this a little bit earlier," or "Let's do a phased approach," or something like that. Basically, giving developers a bit more line of sight and a bit more certainty, and removing some risk from developers, which they can then go fundraise against, etcetera.

But that's one side of it. The other side of it is developers being willing to do a little bit more on spec. Now, developers have always been doing stuff on spec, but if those worlds can come closer together, the comments and conclusions from the panels and conversations were that additional capital and financing will be more easily unlocked, because so much capital is reliant upon offtake and contracts being in place. Until those are in place, you're not able to unlock capital.

So, anyway, I'm hoping that the development and offtake worlds can start coming closer together, because that will unlock additional financing, which then unlocks speed, which unlocks decisions. That's the key takeaway from PowerUp: Data Centers – Investment this week in D.C.

I'd love to hear your take on that. If you think I'm onto something, or I'm wildly off the mark, let me know in the comments. Always game to chat. And if you're in D.C., make sure you stop by the train station. Absolutely stunning. That's all for this week. Talk to you soon.