Executive Summary
A $2.9 trillion data center buildout through 2028 is creating a massive financing puzzle that few investors understand. Baker Botts partner Travis Wofford reveals the critical bottleneck isn't chips or capital—it's 'powered land' with grid connections that take five years to secure. The real alpha lies in understanding that 80% of projects in interconnection queues will never get built, creating scarcity value for the 20% that do. While hyperscalers like Microsoft and Google securitize their data center leases through ABS structures similar to cell tower financing, the operational complexity is exponentially higher. The financing cascade—development equity, construction loans, then takeout securitization—means projects can die at any stage if power interconnection fails. Most revealing: developers are now repurposing solar and wind projects that waited years for grid connections, pivoting to data centers because the economics are superior. This represents a massive capital reallocation from renewable energy to AI infrastructure. The market is pricing data center REITs like DLR and EQIX as if all announced projects will complete, but Wofford's insider view suggests a massive shakeout is coming when speculative 'PowerPoint projects' hit reality.
Key Insights
what Travis Wofford said“Think about the actual interconnection queue two and a half years ago before AI became a big deal. There was, I want to say, 2,600 gigawatts in the interconnection queue, and we were expecting 80% of that would never actually be constructed. Only 20% of it would.”
what Travis Wofford said“You kind of have three categories in the timeline of one of these projects. You have your development capital, that's often equity funded. You have your construction capital, so you get a big construction loan once you've got your permits and your power. And then after that's been completed, then you do your takeout financing, that may be the securitization and the like.”
what Travis Wofford said“What are you going to do with those projects and with that land that has already started in a process of interconnection studies and the like? Well, you can shift that to data centers, especially because a lot of that you were producing solar, batteries, wind, and other power gen. Now you add on the data center layer to it, and what may not have been economic before, now is.”
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