PJM warns data centers face blackouts by mid-2027 as AI demand surges

PJM Interconnection warned data centers could face forced blackouts by mid-2027 as AI-driven power demand pushes the US grid to a tipping point.

"Rapid load growth, tightening supply and rising capacity costs on the current trajectory are unsustainable," Paula Conboy, board chair at PJM Interconnection, said in a letter to stakeholders. "Existing customers should not bear higher capacity costs for large new loads that fail to bring or procure the new supply they require."

PJM will hold an emergency auction in September to fill a roughly 7-gigawatt supply gap starting June 2028. The grid operator forecasts data center electricity demand will add about 70 gigawatts by 2038. PJM's system hit a record 168 gigawatts on July 2, topping a two-decade-old high, as extreme heat and new AI facilities pushed consumption to unprecedented levels.

The warning marks the clearest signal yet that AI infrastructure expansion will increasingly bear its own power costs rather than pass them to residential customers. PJM, which serves 67 million people from Chicago to Washington, D.C., has seen about 15 gigawatts of generation retire since 2022, compounding the supply crunch.

Under the proposed plan, data centers that fail to secure their own generation will receive advance warning before any disconnection during peak hours. Operators that comply with load-shedding requests would receive compensation, effectively integrating them into the grid's demand-response framework. PJM also plans to facilitate direct power purchase agreements between data centers and generators.

The grid operator faces mounting political pressure. The White House and governors from multiple states have called for reforms, including a proposal for a one-time auction where technology companies would bid on 15-year contracts to fund new power plants. PJM is also creating a data center registry to improve demand forecasting.

A previous capacity auction in July failed due to insufficient supply, and PJM has already issued two rounds of emergency alerts this summer. Peter Lake, outgoing senior director of power at the White House's National Energy Dominance Council, said the alerts suggest "deep issues with stability" at PJM.

The challenges at PJM reflect a broader strain on US power grids. Regional transmission operators from the Midwest to the Rocky Mountains have issued emergency alerts this summer as back-to-back heat waves pushed demand to record levels. The Southwest Power Pool secured federal permission to max out generation after issuing its highest-level alerts across parts of eight states.

The reliability threat will require years of investment. PJM's emergency auction costs will be borne by data center operators, not existing ratepayers. Investors will watch the September auction for pricing signals that could reshape the economics of AI infrastructure buildout in the US mid-Atlantic region, where hyperscalers including Amazon, Microsoft and Google have concentrated data center capacity.

This article is for informational purposes only and does not constitute investment advice.