Data center developers and investors are focused on finding ways to balance the risks of financing interdependent energy and data center projects, according to Kirkland & Ellis partner Kim McGrath.

The effort comes as sponsors increasingly find themselves tasked with the challenge of bringing their own power to market, McGrath said on Infralogic’s Crossroads podcast.

Developers in the fast-moving data center sector are increasingly expected—due to both regulatory pressures and capacity constraints—to supply the generation capacity needed to power their new projects.

But, as McGrath noted, securing billions of dollars to finance construction of a data center that may not be viable without completion of a separate energy generation facility can be a tall order, particularly when the economics of the power plant in question are equally dependent on offtake from the unfinished data center.

“The transactions, which have what we would describe as true project-on-project risk—whereby the data center doesn’t work without the power and vice versa—are extremely interesting from a financing side of the house. And we’re just really starting to see early innings of how that’s all going to play out in the financing markets,” McGrath said.

Whether those projects are financed as a single combined transaction or separately and how those interdependent risks are assigned to various project stakeholders varies from project to project, McGrath said.

Throughout the sector, McGrath added, stakeholders are taking a flexible approach, and seeking creative solutions, to get access to the power needed to power the next wave of data centers.

“We’re seeing everybody look at all the opportunities that they can find across the board, just due to the robust demand that we’re seeing,” she said.

To listen to the entire conversation, click here.