The New Reality of Power in Data Centers
For decades, the success of a data center project depended on securing utility power. Developers would negotiate with grid operators, build substations, and design redundancy around centralized utility supply. This model worked when workloads were steady and power availability was abundant.
But in 2025, that reality has shifted. Data centers are no longer consuming tens of megawatts—they are demanding hundreds of MWs at a time, driven by artificial intelligence (AI), high-performance computing (HPC), and cloud-scale deployments. Grids in key hubs like Northern Virginia, Dublin, and Singapore are buckling under the strain, imposing moratoriums or multi-year wait times for new connections.
As a result, colocation providers are increasingly looking behind the meter—building their own on-site generation capacity to secure power, improve sustainability, and create competitive advantage. This strategy, once rare, is now becoming essential for providers that want to scale quickly, reduce risk, and win enterprise and hyperscale tenants.
What “Behind the Meter” Really Means
“Behind the meter” refers to power that is generated on-site at the data center rather than delivered solely from the grid. This includes:
- On-site renewables like solar and wind installations.
- Natural gas or hydrogen fuel cells producing steady baseload power.
- Battery energy storage systems (BESS) for peak shaving and resiliency.
- Microgrids that combine multiple sources into a self-sufficient ecosystem.
Instead of depending entirely on utility companies, colocation providers gain direct control over their energy supply, reducing exposure to grid instability, rising costs, and regulatory uncertainty.
Why On-Site Generation Is Gaining Traction
Grid Constraints
The single biggest driver is the lack of grid capacity in Tier 1 hubs. Developers with land and capital cannot build without power commitments, leaving billions in stranded investment. On-site generation sidesteps this problem by reducing the draw from congested grids.
Hyperscaler Demands
Hyperscalers are demanding renewable, reliable, and expandable power for AI and cloud regions. Colocation providers with behind-the-meter generation can meet these demands faster than competitors reliant on slow-moving utilities.
ESG Pressures
Investors and regulators expect providers to demonstrate tangible sustainability efforts. On-site solar, wind, or hydrogen generation aligns with net-zero commitments while also offering marketing differentiation.
Cost Control
Wholesale energy prices are volatile, driven by geopolitical shocks and weather events. On-site generation allows colocation providers to lock in long-term energy costs and pass savings to tenants.
Types of On-Site Generation in Colocation
Solar and Wind Installations
Solar arrays on rooftops or adjacent land provide clean energy, though limited by intermittency. Some providers pair solar with utility-scale wind farms nearby, integrated through microgrids.
Fuel Cells
Fuel cells powered by natural gas or hydrogen deliver consistent baseload power with lower emissions than diesel or coal. Microsoft, Equinix, and other pioneers are testing fuel cell deployments as primary generation sources for colocation campuses.
Battery Energy Storage Systems (BESS)
Batteries do not generate power, but they enable peak shaving, grid independence, and renewable integration. Large-scale BESS deployments in colocation sites smooth supply, reduce costs, and provide backup resiliency.
Combined Heat and Power (CHP)
Some campuses integrate CHP systems, using natural gas turbines that also capture waste heat for reuse in heating systems or district energy networks.
Case Studies of Behind-the-Meter Success
Equinix in Silicon Valley
Equinix piloted hydrogen fuel cells at multiple Silicon Valley campuses. These deployments reduced reliance on the constrained California grid while demonstrating low-carbon baseload generation for hyperscaler tenants.
Microsoft in Dublin
Faced with Ireland’s grid moratorium, Microsoft partnered on on-site generation projects integrating solar, battery storage, and microgrids to support new Azure regions. Without these solutions, expansion would have been impossible.
Compass Datacenters in Texas
Compass is deploying campuses with integrated microgrids, combining renewables, natural gas, and storage. This ensures scalability while offering tenants long-term energy price stability.
Competitive Advantages for Colocation Providers
Faster Time to Market
Providers with behind-the-meter generation can bring campuses online months or years ahead of grid-only competitors, securing hyperscaler contracts.
Tenant Attraction
Enterprises under ESG pressure prefer providers that demonstrate renewable integration and resiliency. Behind-the-meter power becomes a selling point in RFPs.
Cost Predictability
Energy is often the largest component of colocation operating costs. On-site generation allows providers to stabilize prices and protect tenants from market volatility.
Resilience and Uptime
With redundant on-site generation and storage, providers can maintain uptime even during grid failures. For tenants in finance, healthcare, or government, this resiliency is invaluable.
Challenges in Adopting Behind-the-Meter Strategies
Capital Intensity
Building solar farms, hydrogen fuel cells, or battery systems requires significant upfront investment. Smaller providers may struggle to match the capital commitments of REITs and hyperscalers.
Regulatory Barriers
In some markets, regulations restrict or complicate behind-the-meter generation, particularly when providers want to sell excess energy back to the grid.
Land and Space Requirements
Large solar arrays or wind farms require significant land. In urban or land-constrained hubs, deploying on-site renewables may be impractical without creative vertical or hybrid solutions.
Technology Risk
Fuel cells and hydrogen generation are still emerging technologies. Providers risk investing in platforms that may not achieve the scale, efficiency, or cost savings expected.
Implications for Enterprises
More Sustainable Colocation Options
Enterprises under ESG mandates gain clear benefits from colocating in facilities with behind-the-meter renewable integration. This enables them to report lower Scope 2 emissions and align with investor demands.
Lower Long-Term Costs
By stabilizing energy prices, providers pass savings to tenants. Enterprises benefit from predictable colocation costs over 10- or 15-year contracts.
Enhanced Reliability
On-site generation reduces dependence on fragile grids. Enterprises colocated in these facilities gain higher uptime assurance, a competitive differentiator in mission-critical industries.
What CEOs, CIOs, and CTOs Should Ask Providers
When evaluating colocation partners, executives should ask:
- What percentage of your power is generated on-site?
- How do you integrate renewable energy behind the meter?
- Do you operate microgrids or energy storage systems?
- How do behind-the-meter strategies reduce costs for tenants?
- Are your behind-the-meter deployments auditable for ESG reporting?
The answers determine whether a provider is future-ready or still dependent on increasingly fragile utility models.
Strategic Role of Behind-the-Meter Generation in 2025 and Beyond
Behind-the-meter generation is no longer an experiment—it is becoming a core strategy for competitive colocation providers. As grid constraints intensify and sustainability pressures mount, providers who control their own energy destiny will win hyperscaler contracts, secure enterprise tenants, and achieve faster time-to-market.
In the coming years, the most valuable colocation campuses will not only offer space, cooling, and connectivity—they will deliver independent, sustainable, and resilient power ecosystems. This is the next frontier of competitive advantage in digital infrastructure.
