The Strategic Shift in Data Center Power and Energy Security

 

 

AI data centers necessitate the use of battery technologies to manage volatile loads and provide uninterruptible power supply (UPS) to prevent data loss or corruption. However, the Li-ion technologies used suffer from degradation and recent battery-data center fires have exposed their safety risk in commercial settings. The type of battery and energy storage technologies used may shift over the coming decade, leaning on alternatives which combat the disadvantages of Li-ion. Also, data center owners must consider their power acquisition and supply strategies, and while power purchase agreements (PPAs) have long been adopted, some firms may take more of a vertically integrated approach to power supply acquisition.

 

With these trends considered, and as written in IDTechEx's market research report, "Battery Storage for Data Centers, Commercial & Industrial Applications 2026-2036: Market, Forecasts, Players, Technology", battery storage for data centers is expected to contribute to a growing commercial and industrial (C&I) battery energy storage system (BESS) market, which is forecast to reach US$21B in value by 2036.

 

 

 

 

Data centers use diesel generators and short-duration valve-regulated lead acid (VRLA) and Li-ion batteries as part of their uninterruptible power supply (UPS) systems. However, longer duration energy storage (LDES) technologies may become more fundamental to data center power and energy management strategies, as this can reduce reliance on emission-producing diesel generators and flammable Li-ion battery technologies, while aiding utilities with balancing electricity supply and demand over longer timeframes.

 

Redox flow batteries (RFBs) may be a well-suited technology for this application given their long cycle life, non-flammability, and ability to manage volatile AI loads with minimal degradation. An example long duration uninterruptible power supply (LDUPS) RFB technology is currently being developed by Terraflow Energy in the US. The technology operates in-series, around the data center haul, with power supply from the grid running through the battery, with the inverter on the data center side. This eliminates the need for transfer switching during an outage. If there is a blackout, electricity can be supplied by the battery to the data center over a long duration, e.g., 10+ hours.

 

As well as supporting the data center, long duration battery storage technology can help utilities with grid load balancing. By supplying electricity to the data center through the battery first, if the data center suddenly drops off its load, the battery responds and begins to charge from the grid. This aids the utility by allowing them to continue supplying the same flow of electricity to the site. Otherwise, such large drop-offs in load could cause grid instability.

 

Ultimately, such technologies could be mutually beneficial to the data center operator and the utility.

 

 

In addition to using battery technologies, as part of their power and energy management strategy, data center operators must also consider their long-term power supply strategies. Operators may enter into power purchase agreements (PPAs) with electricity suppliers. A PPA allows a data center operator to purchase electricity from a power producer at agreed pricing and terms, often from a renewable energy project.

 

Under a physical PPA, a utility may "sleeve" the power to the data center, meaning the electricity is delivered through the grid from the generation source to the facility. Alternatively, operators may adopt virtual PPAs (vPPAs). In this structure, the data center continues purchasing electricity from its local utility, while entering into a financial contract with a renewable energy generator. If the market electricity price exceeds the agreed PPA price, the generator pays the data center operator the difference; if the market price is lower than the PPA price, the operator pays the generator the difference. This structure allows the data center operator to hedge power price risk while supporting renewable energy development.

 

However, the power supply strategies adopted by Big Tech firms for their data centers may start to evolve. In December 2025, Google acquired solar and storage developer Intersect Power for US$4.75B and is a direct acquisition of the company's development capabilities. This may signal a shift toward Big Tech firms and hyperscale data center operators moving to vertically integrated approaches, allowing them to secure grid-ready generation capacity directly, rather than relying solely on long-term PPAs. This acquisition should allow Google to expedite development of its data centers in certain parts of the US. The companies are continuing to develop a data center which will feature 840 MW solar PV and 1.3 GWh BESS, scheduled for construction in 2026.

 

 

VRLA and Li-ion technologies are widely available for use in data center UPS and energy management strategies. However, the energy storage technologies adopted may evolve, with alternatives offering less degradation over time and reduced safety risk. The methods in which these technologies are utilized may also change, to more closely support electricity load balancing on the grid. While PPAs will undoubtedly remain ubiquitous in the short-term, data center developers may start to take a more vertically integrated approach to power procurement strategy to give them more control over data center infrastructure development. However, this is only likely to be seen among much larger firms, given the capital required to acquire or develop power, solar, or storage platforms.

 

For more information on C&I battery storage technologies, 10-year market forecasts, projects, trends, cost benefit analysis, and developments for data centers, among many other commercial and industrial applications, with coverage on technology costs and key player interviews, please refer to the IDTechEx report: "Battery Storage for Data Centers, Commercial & Industrial Applications 2026-2036: Market, Forecasts, Players, Technology". The report also includes key research on C&I BESS technology benchmarking, C&I BESS cost breakdown by component, and quantitative analysis of manufacturing LFP cells in the US vs importing these from China (with impact of existing tariffs, tax credits, and the OBBBA considered).

 

For more information on this report, including downloadable sample pages, please visit www.IDTechEx.com/BS4DC, or for the full portfolio of battery and energy storage research available from IDTechEx, see www.IDTechEx.com/research/ES.