The growing energy demands of AI and data centers are challenging the capacity and reliability of traditional power grids. In response, developers are exploring innovative, behind-the-meter power generation solutions.
One such solution involves using associated natural gas, a byproduct of crude oil production, to fuel power generation co-located with data centers. This approach is gaining traction in regions like the Permian Basin, where it offers a new revenue stream for gas producers facing pipeline constraints and provides a reliable power source for data center operators.
A critical component of these projects is the Power Purchase Agreement (PPA), which governs the long-term sale of electricity from the power generation facility to the end-user, such as a data center. Crafting a robust PPA requires careful consideration of numerous factors, including pricing structures, performance guarantees, and the allocation of risks associated with fuel supply and infrastructure.
