How Data Centers Use Energy and Why Power Infrastructure Creates Insurance Exposure

Data centers are rewriting the American energy landscape. That’s not an exaggeration — it’s arithmetic. The Congressional Research Service reports that U.S. data center electricity consumption could triple by 2028 to account for up to 12% of total national generation. When a single industry sector consumes as much electricity as the entire United Kingdom, the insurance implications of powering that infrastructure become impossible to ignore.

The energy story isn’t just about consumption volume. It’s about what happens at every point in the power delivery chain — from the generating source to the transformer yard to the distribution panel inside the data hall — and what breaks, leaks, catches fire, or fails along the way. Each link in that chain carries property, liability, and environmental exposure that needs to be covered. Most data center insurance programs we review address the building and the servers but treat power infrastructure as an afterthought.

• According to the International Energy Agency, roughly half of a data center’s total electricity powers IT equipment directly, with cooling systems consuming 7-30% depending on facility efficiency, and the remainder going to power distribution, lighting, and support infrastructure
• AI workloads have fundamentally changed power density requirements — a single AI training cluster can draw more electricity than a mid-sized office building
• Cooling technology is shifting from air-based systems to liquid cooling for AI infrastructure, introducing water damage risks directly adjacent to equipment worth hundreds of millions of dollars
• Backup power systems including diesel generators, natural gas turbines, and battery energy storage systems (BESS) create fire, fuel storage, and environmental liability exposures
• Our licensed advisors structure insurance programs that address the complete power infrastructure chain — from generation and transmission through on-site distribution, backup systems, and cooling — for data center operators and developers across Houston, Miami, and NYC

Why AI Is Changing Everything About Data Center Power and Insurance

The GPU Power Density Problem

Traditional data center racks drew 5-15 kilowatts of power. Manageable. Predictable. Easy to cool with conventional HVAC systems and straightforward to insure with standard commercial property policies. Then generative AI arrived, and power density per rack jumped to 40-100+ kilowatts — concentrating electrical load and equipment value into physical footprints that existing insurance frameworks can’t handle without modification.

The U.S. Department of Energy documented that AI-driven data center electricity demand is growing at approximately 30% annually, compared to 9% for conventional server workloads. This growth rate means the facilities being designed today will consume more power upon completion than the models predicted during permitting — creating insurance coverage adequacy concerns before the buildings are even operational.

• A single Nvidia GB200 rack draws significantly more power than traditional equipment and costs hundreds of thousands of dollars — packing enormous property values and electrical fire risk into a single chassis
• Power distribution units (PDUs) serving high-density AI racks operate at higher amperages and temperatures, increasing the probability of electrical faults, arc flash incidents, and fire
• Equipment breakdown coverage must address GPU thermal throttling, power supply failures, and cascading electrical faults that can damage millions in adjacent equipment
• Higher power density means higher cooling requirements, which means more water, more chemicals, more mechanical complexity — each adding to the facility’s total insurable risk profile
• We work with specialty technology insurers who understand AI infrastructure power demands and can structure property and equipment coverage reflecting actual power density, not outdated assumptions based on traditional data center configurations

Liquid Cooling: The New Water Damage Risk

The data center industry’s shift to liquid cooling for AI workloads represents a fundamental change in facility risk profile that most insurance policies haven’t caught up with. When you pump water or specialized coolant through piping that runs directly through or adjacent to server racks containing billions in GPU hardware, you’ve created a property loss scenario that water damage exclusions in standard policies were never designed to address.

Direct-to-chip liquid cooling and immersion cooling systems are rapidly becoming the standard for AI-optimized data centers. The efficiency benefits are undeniable — liquid cooling can reduce energy consumption for cooling by 30-50% compared to air-based systems. But from an insurance perspective, you’ve introduced a new peril directly into the most valuable physical assets in the building.

• Direct-to-chip cooling systems route liquid coolant through manifolds attached to individual GPU processors — a leak at any connection point exposes equipment worth hundreds of thousands of dollars per rack
• Immersion cooling submerges entire servers in dielectric fluid, creating fire suppression benefits but introducing fluid handling, disposal, and environmental liability exposures
• Water damage exclusions in standard property policies can void coverage for cooling-related losses unless specifically endorsed for data center liquid cooling systems
• Temperature and humidity excursion coverage protects equipment values when cooling failures expose sensitive hardware to thermal damage during commissioning or operations
• Our advisors negotiate liquid cooling endorsements with carriers who understand the specific cooling technologies deployed in modern AI data centers — this is not coverage you buy off the shelf

Grid Strain and Business Interruption Exposure

When data centers consume 24% of a region’s total electricity — as they do in Northern Virginia — any grid disruption creates correlated business interruption losses across dozens of facilities simultaneously. S&P Global projects U.S. data center grid power demand will reach 75.8 GW in 2026 and 134.4 GW by 2030. That level of concentrated demand creates grid strain that insurance carriers are only beginning to model and price.

ERCOT’s performance during Winter Storm Uri in February 2021 gave the insurance industry a preview of what grid-dependent data center losses look like. Facilities that lost grid power for days relied on backup generators running on fuel that was also in short supply. The cascading failure exposed gaps in business interruption, equipment breakdown, and contingent coverage that many operators didn’t know they had.

• Business interruption coverage for data centers must address both direct physical damage and service interruption from utility failures — standard BI policies often exclude or sub-limit utility-related losses
• The North American Electric Reliability Corporation warned of “elevated risk” of electricity shortfalls in 2026 across multiple grid regions, creating systemic business interruption exposure for data center operators
• Waiting period deductibles on BI policies — typically 12-72 hours before coverage responds — can leave millions in early-stage outage losses uninsured
• Contingent business interruption covering losses from grid operator failures requires careful policy language distinguishing between grid supply curtailment and total failure
• We structure business interruption programs for data center operators that address grid dependency, utility failure, and service interruption with limits and triggers calibrated to actual revenue exposure — for more on how this ties into data center construction phases, see our builders risk and workers comp guide

Case Study: How Vertex Cloud Services Turned a $2.1 Million Power Loss Into a $180,000 Deductible

Vertex Cloud Services (name changed for confidentiality) operates a 50MW colocation facility in the Houston metropolitan area serving enterprise clients across energy, financial services, and healthcare. In August 2025, a transformer failure at the local substation dropped grid power to the facility for 14 hours. Their backup generators kicked in within 30 seconds — exactly as designed. The problem was everything else.

The generator transfer created a 400-millisecond power interruption that bypassed UPS battery bridges in two of six data halls. That sub-second gap was enough to hard-crash 340 servers, corrupt databases for three enterprise clients, and trigger SLA penalty clauses totaling $1.4 million. Emergency repair, data recovery, and customer remediation added another $700,000.

• Total loss: $2.1 million across equipment damage, SLA penalties, emergency response costs, and customer remediation
• Before engaging our team, Vertex’s insurance program would have covered only equipment replacement under a basic property policy — SLA penalties and customer remediation were excluded, and business interruption had a 72-hour waiting period that wouldn’t have triggered for a 14-hour outage
• Six months prior, our advisors had restructured their program with equipment breakdown coverage addressing transfer switch failures, technology E&O covering SLA penalties and customer data recovery costs, and business interruption with a 4-hour waiting period
• The restructured program covered $1.92 million of the $2.1 million loss after a $180,000 combined deductible — compared to estimated recovery of $340,000 under the previous program
• Total annual premium increase for the enhanced program: $62,000 — representing a 31:1 return on the incremental insurance investment in this single incident

On-Site Power Generation: The Hybrid Risk Profile

Behind-the-Meter Data Centers

The hottest trend in data center development is the “behind-the-meter” model — pairing a dedicated power source (natural gas, nuclear, solar, battery storage) directly with a data center campus, bypassing the public grid entirely. Tech companies announced eleven-figure investments in behind-the-meter facilities in Pennsylvania following a July 2025 AI summit, and the model is proliferating across Texas and the Midwest.

From an insurance perspective, behind-the-meter facilities combine the risk profiles of a power plant and a data center into a single campus. You’re simultaneously insuring generation equipment, fuel handling, environmental exposure, electrical distribution, and the technology infrastructure consuming the power. Most insurance programs for these facilities are stitched together from separate energy and technology policies — creating coordination gaps that surface during claims. For the Texas angle on this trend, our Texas Data Center Boom Insurance Guide covers how SB Energy and other developers are structuring on-site power for the Stargate and Vantage corridors.

• Natural gas-fired generation introduces fuel supply, pipeline, and combustion turbine risks requiring energy-sector property and liability coverage
• Nuclear-powered data centers — emerging in partnership with small modular reactor developers — carry regulatory, nuclear liability, and decommissioning exposures that require specialized carrier involvement
• Solar and battery storage hybrid systems create weather-dependency risk for generation and thermal runaway fire risk from lithium-ion battery systems
• Environmental liability for fuel storage, emissions, cooling water discharge, and battery disposal adds layers of coverage beyond what pure technology data center policies address
• Our team bridges the gap between energy infrastructure insurance and technology property coverage, structuring unified programs for behind-the-meter data center campuses that eliminate coordination gaps between separate policies

Battery Energy Storage System (BESS) Fire Risk

Battery energy storage systems are becoming standard components of data center power infrastructure — both as backup power replacing or supplementing diesel generators and as grid-level storage for facilities with renewable generation. The insurance industry is still developing its understanding of lithium-ion battery fire risk, and the coverage landscape is evolving quarterly.

BESS thermal runaway fires are different from conventional building fires. They involve toxic gas emissions, can reignite days after initial suppression, and generate temperatures that damage nearby structures and equipment. For data centers, a BESS fire adjacent to or integrated with the facility creates cascading property losses that basic fire coverage doesn’t adequately address.

• Lithium-ion battery thermal runaway can generate temperatures exceeding 1,000°F and produce toxic hydrogen fluoride gas, creating workers compensation, environmental, and premises liability exposure beyond property damage
• Insurers are requiring minimum separation distances between BESS installations and occupied data center buildings, with some carriers declining coverage when batteries are integrated into building structures
• Fire suppression systems designed for conventional building fires may be insufficient for battery thermal runaway events — specialized suppression endorsements are becoming prerequisites for coverage
• Environmental cleanup costs from BESS fires can exceed $500,000 for a single event, requiring standalone environmental liability coverage with adequate limits
• We stay current with the rapidly evolving BESS insurance market and help data center operators secure coverage with carriers who have specific experience underwriting battery storage risk alongside technology infrastructure