S&P Warns of Credit Downgrades for Data Centers Amid Local Opposition
Translated & summarized from Bizportal by baba
S&P Global Ratings warned that public opposition to data center construction in the U.S. could lead to credit downgrades for projects. Local resistance, citing issues like power grid strain and water usage, has already caused delays or cancellations in about three-quarters of 146 tracked projects. The rating agency highlighted that $105.3 billion in North American data center debt is at risk. In Israel, the Electricity Authority has limited new server farm connections to 1,300 megawatts by 2030.
The story in 5 lines · by baba
- S&P Global Ratings warned that local opposition to data centers could lead to credit downgrades.
- Three-quarters of 146 U.S. data center projects faced delays or cancellations due to public resistance.
- Concerns include power grid strain, water usage, noise, and pollution from data centers.
- North American data center debt rated by S&P totals $105.3 billion.
- Israel has limited new server farm connections to 1,300 megawatts by 2030.
S&P Global Ratings has issued a warning that public opposition to data center construction in the United States could negatively impact the credit quality of these projects, potentially leading to credit rating downgrades. This analysis addresses the debt market financing the rapidly growing AI infrastructure.
According to S&P analysts, approximately three-quarters of 146 delayed or canceled U.S. projects were due to local resistance. The rating agency's analysis focuses on moratoriums in New York, Texas, Pennsylvania, Illinois, and Arizona, states previously favored by developers. Common concerns cited by local authorities include strain on the power grid, rising electricity costs for residents, high water consumption in drought-prone areas, noise and air pollution from transformers and generators, and changes in land use.
While S&P notes that the actual impact on credit ratings has been limited so far, the risks are significant for debt-financed projects. These projects typically rely on long-term leases with anchor tenants, such as cloud giants or AI companies. Delays in obtaining permits or utility connections can lead to rent credits for tenants, and prolonged delays may allow tenants to cancel contracts. This transforms a project with predictable cash flow into a potentially vacant asset, impacting lenders who have already provided financing.
S&P estimates that the rated data center debt in North America totals $105.3 billion across 32 transactions, involving 143 properties with approximately 8.7 gigawatts of capacity. Project finance accounts for the largest portion of this debt, at 58%, followed by asset-backed securities (ABS) at 26%.
Despite these challenges, S&P anticipates continued strong demand for data centers due to increasing data volumes, cloud migration, and digitalization. The warning highlights supply-side constraints, including power limitations, permitting difficulties, public opposition, and regulatory responses. In response, local authorities in numerous states have imposed restrictions, and some lawmakers are proposing measures to make tech giants bear the costs of their facilities' electricity consumption. S&P expects this opposition to push the industry towards secondary markets, such as rural or cooler regions, and areas with cooperative local governments, which could increase project costs and timelines.
In Israel, the Electricity Authority has set a quota of 1,300 megawatts for new server farm connections by 2030, with a cap of 200 megawatts per facility and guarantees required from developers.