In the age of AIPublic utilities are now facing a new, unexpected problem: Phantom data centers. On the surface, this seems illogical: Why (and how) would anyone build something as complex as a data center? But as the demand for AI skyrockets along with the demand for more computing power, speculation around data center growth is creating a frenzy, especially in places like Northern Virginia, the data center capital of the world. In this evolving landscape, utilities are bombarded with power requests from real estate developers that may or may not work. to be honest building the infrastructure they claim.

Fake data centers represent an immediate bottleneck in scaling data infrastructure to keep up with compute demand. This emerging phenomenon prevents capital from flowing where it should. Any business that can help solve this problem – maybe use of AI to solve a problem created by AI – has an important content.

The mirage of the gigawatt is demanded

Dominion Energy, Northern Virginia’s largest utility, has received joint requests for 50 gigawatts of electricity from data center projects. That’s more energy than Iceland consumes in a year.

But many of these claims are conjecture or outright false. Developers are looking at potential sites and staking their claims on power capacity before they have capital or any strategy on how to break ground. In fact, estimates suggest that up to 90% of these requests are completely bogus.

In the early days of the data center boom, utilities didn’t really worry about fake demand. Companies like Amazon, Google and Microsoft — called “hyperscalers” because they operate data centers with hundreds of thousands of servers — submit straightforward power requests, and utilities are simply provided. But now, the trouble of securing power capacity has led to an influx of requests from little-known developers or speculators with dubious track records. Utilities, which have traditionally dealt with only a handful of power-hungry customers, are suddenly inundated with orders for power capacity that will shrink their entire grid.

Utilities struggle to sort fact from fiction

The challenge for utilities is not just technical – it’s existential. They are tasked with determining what is true and what is not. And they are not well equipped to handle it. Historically, utilities have moved slowly, avoiding risky institutions. Now they are being asked to vet speculators, many of whom are just playing the real estate game, hoping to flip their power allocations once the market heats up.

Utilities have teams tasked with economic development, but these teams are not equipped to deal with multiple speculative requests at once. It is similar to a land rush, where only a fraction of those claiming stake actually plan to build something tangible. The result? Paralysis. Utilities are hesitant to allocate power if they don’t know what projects will happen, slowing down the entire development cycle.

A capital city

There is no shortage of capital flowing into the data center space, but that abundance is part of the problem. When capital is easily accessible, it leads to speculation. In a way, it resembles a better mousetrap problem: Too many players chasing an oversupplied market. This influx of speculators creates indecision not only within the utilities but also in local communities, who must decide whether to grant permits for land use and infrastructure development.

Adding to the complexity is that data centers aren’t just for AI. Sure, AI is driving a surge in demand, but there’s also an ongoing demand for cloud computing. Developers are building data centers to accommodate both, but differentiating between the two is increasingly difficult, especially when projects are mixed. AI hype with traditional cloud infrastructure.

What is true?

Legitimate players – the aforementioned Apples, Googles and Microsofts – are building real data centers, and many are adopting strategies such as “behind-the-meter” deals with renewable energy providers or building microgrids to avoid grid interconnection bottlenecks. But as the real projects proliferate, so do the fake ones. Developers with little experience in the space are trying to cash in, leading to a more turbulent environment for utilities.

The problem is not just financial risk – although the capital required to build a gigawatt-scale campus can easily exceed several billion dollars – it is the complexity of developing infrastructure on this scale. A 6-gigawatt campus sounds impressive, but financial and engineering realities make it nearly impossible to build in a reasonable timeframe. However, speculators are throwing these large numbers around, hoping to get the power capacity in hopes of losing the project later.

Why the grid can’t keep up with data center demands

As utilities struggle to sort fact from fiction, the grid itself becomes a bottleneck. McKinsey recently estimated that the world’s data center demand could reach up to 152 gigawatts by 2030adding 250 terawatt-hours of new electricity demand. In the US, only data centers can account 8% of total electricity demand by 2030a staggering number considering how little demand has grown over the past two decades.

However, the grid is not ready for this surge. Interconnection and transmission issues are widespread, with estimates suggesting the US could run out of electricity capacity by 2027 to 2029 if alternative solutions are not found. Developers are increasingly turning to on-site generation such as gas turbines or microgrids to avoid interconnection bottlenecks, but these stopgaps only serve to highlight the grid’s limitations.

Conclusion: Uses as gatekeepers

The real bottleneck is not a lack of capital (trust me, there is a lot of capital here) or even technology – it is the ability of utilities to act as gatekeepers, determining who is real and who is playing speculation . Without a strong process to vet developers, the grid risks being overwhelmed by projects that never materialize. The age of fake data centers is here, and until utilities adapt, the entire industry may struggle to keep up with real demand.

In this chaotic environment, it is not just about power allocation; it’s about utilities learning to navigate a new, speculative frontier so businesses (and AI) can thrive.

Sophie Bakalar is a partner in Collaborative Fund.