The Searchlight Institute released a report arguing that the data center buildout should be taken advantage of to pay for the expansion of the grid.

The think tank was established in 2025 by a group of Democrats who want to come up with policies most Americans support, and it dives into the growth of data centers as their impact becomes a top issue in politics. (See EPSA Summit Held with ISO/RTOs in the Middle of the Political Debate.)

“Seizing the Data Center Buildout for Grid Modernization” is written by Searchlight Senior Fellow Jane Flegal and was released March 9. It notes that the grid is aging and the clean, firm capacity needed for a reliable system is nowhere near built.

“Meeting national goals, from powering economic growth to enhancing our industrial competitiveness to advancing our national security, requires building a dramatically larger, more capable electricity system,” the report said. “Fixing this problem was always going to be expensive and politically difficult.”

The U.S. is competing with China on artificial intelligence, and a key constraint is the grid’s ability to serve the data centers needed to train and deploy AI.

“Data center demand could be an opportunity to fix the underlying problem,” the report said. “Data center operators want fast access to reliable power, certainty and fair treatment from policymakers. Policymakers and grid advocates can benefit from what those data centers can provide: capital, load growth that justifies long-needed grid investments and tax revenue.”

There is a narrow window through which policymakers must steer the grid buildout for optimal data center development. The report warns that window will close soon.

“The response to data center demand thus far has been ad hoc and inadequate,” the report said. “The structural failures underlying this dynamic, from interregional planning deadlock to permitting barriers to fights over cost allocation, require major policy change.”

The report suggests setting up an “American Grid Infrastructure Fund” to ensure spending associated with data center growth also enables grid modernization and maximizes benefits such as increased local tax revenues and construction employment.

“Participation agreements that require true cost causation commitments would deliver ratepayer cost savings that no voluntary commitment currently produces,” the report said. “An insurance pool backstopping stranded cost risk would unlock proactive transmission investment that can’t get built today without exposing ratepayers to downside. Procurement aggregation would convert hyperscaler equipment purchasing into a domestic manufacturing demand signal that no company negotiating alone can generate.”

Such a fund could be set up to be voluntary at first, but the report calls for a new federal law eventually.

“A fund can convert data center capital and political weight into an organized force for grid reform,” the report said. “Even if a fund failed to solve the political economy problem, it would generate more public benefit than the current, ad hoc approach.”

The fund would offer data centers cheaper financing, a standard participation agreement to accelerate interconnection, procurement aggregation to address grid bottlenecks and access to clean firm power at scale.

“The fund would not solve all of the grid’s problems on its own, but it could serve as part of a framework in which regulatory reform at the federal level, financing through the fund, and incentives for state action reinforce each other,” the report said. “The fund’s participation agreements, governance architecture and deployment strategy would aim to maximize the public benefit of data center demand growth while helping developers secure the certainty and speed they require.”