Lawmakers from statehouses to the Capitol are under pressure to curb rising electricity prices without slowing the rapid buildout of data centers for artificial intelligence.
This has created an opening for advocates of limited government and the free market: let data centers go completely off-grid and sidestep the complex regulations slowing down their construction. That way, the pitch goes, homes and businesses won’t have to subsidize Big Tech’s energy bill and hyperscalers can avoid lengthy grid reliability studies, interconnection queues, and rate cases that settle who pays for new power infrastructure.
“I’ve been playing around with the idea of what a free market in electricity would look like. Could we get there by reforming the current system? I think the answer is probably no,” Travis Fisher, director of energy and environmental policy studies at the Cato Institute, a libertarian think tank, told Latitude Media. “We need brand new networks.”
With the need to get significant amounts of power to new data centers, the concept has begun to gain traction with policymakers. Earlier this month, Sen. Tom Cotton (R-Ark.) proposed a bill that would exempt self-contained power islands from the Federal Power Act, which governs wholesale electricity markets and transmission planning.
At the state level, New Hampshire Gov. Kelly Ayotte (R) signed a similar law last year that waived state PUC oversight of such electricity providers, but still subjected them to state environmental, health, and safety permitting laws. Meanwhile, members of the American Legislative Exchange Council — an influential engine of modeling bills for conservative state lawmakers — approved their own version.
The bills are technology-agnostic, but most companies planning for onsite generation so far are relying on fossil gas generators or turbines. These produce higher and more locally concentrated emissions than result from grid-connected data centers. One high-profile example, endorsed by President Donald Trump in his first week in office, is Oracle and OpenAI’s Stargate project in Texas, powered by a 700 megawatt gas microgrid, which has no public plans for a grid connection.
Meanwhile, Joule Capital Partners in Utah is also pursuing their own off-grid project. In 2025, the state enacted a law allowing large energy users to pursue their own generation if utilities can’t meet the demand.
The ‘politics of the grid’
This comes as electricity prices — and hyperscalers’ attempts to avoid pushing them higher — pull the political spotlight.
In an unprecedented move, the White House and state governors asked PJM to hold an emergency capacity auction for tech companies to buy power for the next 15 years in order to attract investment in new power plants. Governors of Pennsylvania, Virginia, and other states have feuded with PJM for years over its management of the grid, including how to distribute the cost of transmission upgrades. The tension has escalated now that PJM is forecasting it won’t have enough new power generation to meet demand largely from data centers as soon as June 2027 — even as electricity prices spike.
Fisher said he expects the “politics of the grid” to get worse, which is why some companies may want to avoid it altogether. He acknowledged that building a private grid would be an economic and engineering challenge. But for hyperscalers trying to win an AI race with China, not being able to secure enough computing power may be a bigger risk.
“I get this question a lot: ‘Nobody would do this. It’s too costly,’” Fisher said on a podcast he hosts. He argued that the real cost for hyperscalers isn’t electricity or building a new power network, but rather the opportunity cost. “The economic upside is so huge right now.”
Hyperscalers generally prefer to be grid-connected, even as they increasingly bring their own power, in part because of the reliability benefits. If onsite generators go offline, the grid can instantly provide power to keep servers running. The power demands of AI workloads, such as training a large language model or chatbots answering questions, can also fluctuate rapidly — sometimes by hundreds of megawatts within seconds. A regional grid is large enough to absorb these “jagged” loads that might trip up equipment at an isolated power plant.
Plus, data centers are often over-built, with more power capacity than they need to account for future growth. Some hyperscalers want the option of selling excess electricity back to the market during periods of high demand, although those programs are in their early stages.
Reality check
Fisher acknowledged that even if these laws are adopted widely, off-grid data centers will never dominate the U.S. landscape. The vast majority will still be grid connected. But he still thinks it’s a worthy effort, with the potential to spur some competition and innovation.
More data centers are already being designed with fully onsite power, according to a Bloom Energy survey of more than 100 hyperscalers, colocation providers, utilities, independent power producers, and equipment providers. Nearly a third of respondents expect to operate data centers entirely with onsite power by 2030.
“The worst thing that happens is, whoever said it was too expensive, they might be right, and nothing gets built,” Fisher said on the podcast. “Best case scenario, we’ve opened up a window to a brand new industry that could go gangbusters.”
Since New Hampshire enacted its law last year, no company has tried to take advantage of the new free-market approach, said Sam Evans-Brown, executive director of Clean Energy NH, an advocacy group.
But the state isn’t a data center hub, nor is it an easy place to build a gas plant because of limited pipeline infrastructure, Evans-Brown said. New Hampshire’s libertarian leanings just made it an easy first target for Cato’s legislation.
“The reality is, if you’re gonna try to build an off-grid power plant in New Hampshire, there will still be all the same constraints,” he said. “Land development costs are high and New England is famous for being nothing but backyards. I don’t think off-grid large loads is a bad idea, I’m just skeptical they’ll get built.”
Utilities will likely be opposed, as well, if New Hampshire is any indication. The industry successfully included a provision in the law blocking off-grid power islands from crossing roads and maintaining that they must be entirely contained on private land — a major restriction to building gigawatt-scale power islands in the state.
“Utilities will fight this to the end, because their monopoly is the absolute fundamental basis for their business,” Mike Jacobs, senior manager of energy at Union of Concerned Scientists, told Latitude Media, adding that data centers are the biggest growth opportunity the industry has had in decades.
“It’s a libertarian fantasy,” he added. “But what consumer advocates like about it is, ‘Go ahead and try. Thank you for leaving us out of it.’”
