Report: U.S. Data Center Development Faces New Challenges Amid Slowing Growth

A new analysis from Wood Mackenzie suggests that growth in the U.S. data center development pipeline remains significant but is beginning to slow as developers contend with grid constraints, rising policy complexity and a shift toward executing existing projects rather than announcing new ones.

According to the firm’s latest U.S. Data Center Pipeline report, 25 GW of new data center capacity was added to the development funnel in the fourth quarter of 2025—about half the amount added in the third quarter. By the end of 2025, the total disclosed U.S. data center pipeline had reached 241 GW, compared with 93 GW at the end of 2024. About 33% of that capacity is currently under active development.

The report indicates that developers began shifting attention late last year toward advancing projects already in the pipeline rather than launching new ones.

“Developers shifted to focusing on the existing pipeline at the end of last year as opposed to new projects, as load queue constraints weighed on the market,” said Ben Hertz-Shargel, global head of grid edge at Wood Mackenzie. He noted that much of the planned capacity belongs to newer developers pursuing a small number of very large, speculative projects, many located in the South and Southwest.

Changing Cost Dynamics

Wood Mackenzie also reported a change in cost trends during the fourth quarter. For the first time in the current development cycle, per-megawatt construction costs declined after increasing steadily through 2024.

However, increasing rack power density is pushing costs per square foot higher even as costs per megawatt fall. The trend reflects the industry’s move toward more energy-dense facilities intended to improve efficiency and reduce inference latency.

The report also points to a slowdown in capital spending growth among major developers. The largest developers are projected to invest $94 billion more in 2026 than in 2025—equivalent to 58% of the growth recorded the previous year. Wood Mackenzie noted that Oracle has taken on significant debt to fund its Stargate campuses, many of which depend heavily on behind-the-meter generation.

Regional Growth Patterns

While Texas remains the leading state for total data center pipeline capacity, emerging markets experienced the fastest relative growth during the fourth quarter of 2025. New Mexico, Indiana and Wyoming saw the largest proportional increases, driven primarily by access to natural gas supplies.

Overall, new developers account for a growing share of planned capacity. Projects led by newer entrants—many of them large speculative developments targeting the South and Southwest—now represent 39% of the total pipeline.

Grid Constraints Emerge as a Key Issue

The scale of electricity demand associated with proposed projects is also becoming a growing concern for power systems.

Wood Mackenzie estimates that large loads with signed construction or electricity supply agreements now total 183 GW, equal to roughly 22% of U.S. peak load in 2025. Utilities within PJM Interconnection and Electric Reliability Council of Texas account for 72% of those commitments. At the same time, 58% of the committed load is contracted with wires-only utilities that are not responsible for ensuring generation supply.

The report highlights challenges in PJM in particular, where utility large-load commitments are three times larger than the accredited capacity in the region’s risked generation queue.

Texas also leads the country in planned data center capacity paired with onsite generation, with four times more such projects than any other state. In PJM states such as Pennsylvania and Virginia, most onsite generation is expected to remain grid-connected. In contrast, onsite generation in states including Texas, Wyoming and New Mexico may operate largely off-grid or remain invisible to the bulk power system.

Policy Changes Add Complexity

New policy proposals could further complicate development. The report notes that emerging state and federal initiatives are changing project requirements, placing greater emphasis on relationships with generators, strong balance sheets and power market expertise among developers.

Officials in The White House, PJM and governors in PJM states are aligned on potential market reforms, although details of a proposed backstop capacity auction have not yet been finalized.

Meanwhile, proposed interconnection rule changes in the Southwest Power Pool and ERCOT could introduce operational risks for data centers, including voltage ride-through requirements and increased exposure to curtailment. The North American Electric Reliability Corporation is working toward a national ride-through standard that could apply to data center operators across the country.

“New data centers must contract with new generation or face non-firm transmission service,” Hertz-Shargel said. “This creates diesel supply and generator runtime risk that could cause hesitation on data center development in these regions.”

Wood Mackenzie concludes that the combination of slower capacity additions, moderating capital investment growth and increasing regulatory complexity suggests the U.S. data center market may be entering a more mature phase, with developers prioritizing execution of existing projects over rapid pipeline expansion.