Illinois’ Data Center Boom: Incentives, Grid Pressures, and What to Watch

On December 15, 2025, the Illinois Power Agency (IPA), Illinois Environmental Protection Agency (IEPA), and Illinois Commerce Commission (ICC) jointly released its 2025 Resource Adequacy Study, highlighting capacity shortfalls emerging as soon as 2029 in Northern Illinois and 2031 downstate, driven in part by the quickly increasing data center load.

Key Adequacy Study Takeaways

• Illinois faces emerging capacity shortfalls as early as 2029 in Northern Illinois and 2031 in Southern Illinois, largely due to surging data center demand for the state’s limited power resources.

• The rapid growth of data centers is straining Illinois’ power grid, raising concerns about reliability and the potential for increased electricity costs.

• Grid operators are actively reassessing their resource adequacy planning and exploring solutions to address the challenges posed by large, continuous loads like data centers.

• Illinois policymakers are working to address looming capacity shortfalls and affordability concerns by incentivizing increased generation and expediting the interconnection process for new generation facilities. 

Illinois Resource Adequacy Outlook

The study projects power shortfalls will begin in the Commonwealth Edison (ComEd) service territory in Northern Illinois by 2029 and in the Ameren service area covering most of downstate Illinois by 2031. 

PJM is the largest power grid operator in the United States, serving 67 million customers in 13 states and Washington, DC, including 4.2 million Commonwealth Edison customers in Northern Illinois. Midcontinent Independent System Operator (MISO) has a service area encompassing over 45 million people in 15 states, including Southern Illinois and the Canadian province of Manitoba.

Both PJM and MISO are reevaluating the assumptions and forecasts used in their resource adequacy analyses and are seeking solutions to the challenges posed by rapidly interconnecting data centers and other large loads.

Illinois’ Data Center Investment Program Has Catalyzed Billions in Tax Revenue

In 2019, Illinois enacted its Data Center Investment Program, which offers qualified owners and operators of data centers up to 20 years of state and local sales and use tax exemptions through renewable five-year certificates awarded by the Illinois Department of Commerce and Economic Opportunity. Eligibility for the program centers on project scale, workforce, and sustainability commitments. Applicants must invest at least $250 million in Illinois data center projects over five years, create at least 20 new full-time jobs, and meet carbon neutrality or approved green building standards within two years of the facility entering service.

Over the past five years, participation in the program has been robust, with the state approving 27 of 28 applications for data centers qualifying for tax exemptions and executing six memoranda of understandings for additional data centers. The fiscal impact has also been notable. Illinois’ data center industry generated $1.85 billion in 2023 in state and local tax revenues, an 11% year‑over‑year increase. We note that for just the 27 approved data centers, Illinois will forego approximately $983 million in state and local sales tax revenue over the first five years of the program. The Department states that this is not “lost revenue” but instead a discount on new, incremental tax revenue generated by capital investments that would not have occurred absent the program.

Data Center Development in Northern Illinois Favors a ‘Power-First’ Approach

Industry trackers consistently rank the Chicago area among the most active US markets for data center development. Northern Illinois enjoys long-standing advantages that attract hyperscale and co-location investment to the region, including top-tier fiber routes, carrier density, cloud on-ramps, and a skilled workforce. ComEd, Chicago’s primary electric utility, is navigating a surge in interconnection and service requests, with transmission and queue constraints lengthening power delivery timelines. ComEd anticipates additional growth in demand driven by data center expansion. Thus, data center developers are increasingly pursuing “power-first” site selection with near-term, reliable power availability as the limiting and decisive factor for new data center development.

As Illinois Power Plants Close, Chicago and Northern Illinois Can Expect Tightening Reserve Margins and Higher Costs

Exacerbating the stress from higher loads on the transmission systems is the planned retirement of many coal, gas, and oil generation facilities across both MISO and PJM due to age, economics, and emissions limits. In 2021, Illinois enacted the comprehensive Climate and Equitable Jobs Act, which aims to have Illinois powered 100% by carbon-free sources by 2045. This law requires the phasing out of carbon emissions, including taking all of Illinois’ fossil fuel generators offline by 2045.

The outlook for near-term solutions to the growing strain on the grid is not good. Presently, the interconnection queue is dominated by intermittent renewables with low accredited capacity, and new thermal generation facilities that could provide a more stable generation source face long development timelines and complex permitting requirements. Increased reliance on renewable generation facilities may reduce power reliability margins, increasing the risk that disturbances cause blackouts or grid failures. The imminent mismatch between large load additions from concentrated data center growth and reliable supply is expected to keep reserve margins tight and capacity prices elevated in Northern Illinois. Consumers have already begun to feel the strain of increasing demand, as 2024’s record-high-capacity electricity auction prices were largely passed on to end users. 

Southern Illinois Sees Near-Term Power Availability, But a Long-Term Shortfall Looms

MISO’s trajectory matters for downstate Illinois and statewide planning. MISO forecasts steady peak load growth, with projections showing that data centers’ power usage will rise from approximately 3% of the total load in 2026 to 13% by 2035. While MISO is forecasted to remain resource-adequate through 2030, without action by state policymakers and grid operators, capacity shortfalls are expected to emerge in 2031 and widen thereafter. As with PJM, recent capacity auctions have cleared at record highs, and the interconnection queue is weighted toward variable resources which will provide intermittent power. While recent reforms to the interconnection process should streamline interconnections over time, transmission upgrades, supply chain bottlenecks, and permitting timelines continue to limit the speed at which new capacity can be added to the grid to accommodate the increasing demand caused by data center development. 

Illinois Policy Developments to Watch

• Grid Planning and Affordability: The Clean and Reliable Grid Affordability Act (discussed in our November 14, 2025, alert) requires integrated resource plans from municipal power agencies, municipalities, and electric cooperatives, supporting statewide power capacity procurement planning. 

• Nuclear Expansion: The 2025 passage of H.B. 2473 removed the moratorium for smaller nuclear generation projects beginning January 1, 2026, and a 2025 US Senate bill (S.B. 1527) would repeal the ban on constructing new large nuclear reactors — together potentially removing all existing barriers to nuclear power expansion of carbon-free capacity.

• Resource Adequacy Study Mitigation Planning: The IPA, ICC, and IEPA recently announced plans to draft a Resource Adequacy Study Mitigation Plan to address the issues raised by the study. The first stakeholder workshop for this project will be on January 27 from 1:00 PM to 3:00 PM CT. 

Federal Policy Developments to Watch

• DATA Act of 2026: On January 8, Sen. Tom Cotton, R-AR, introduced a bill in the Senate that would exempt fully off-grid power suppliers from the Federal Power Act and US Department of Energy regulations, enabling data centers, manufacturers, and other energy-intensive industries to more quickly and easily build captive co-located electricity generation.

• Federal Focus on Large Loads: The Federal Energy Regulatory Commission (FERC) has been examining how to regulate data center co-location with power plants while preserving reliability and fair cost allocation. FERC’s recent proceedings could accelerate data center and generation co-locations.

Best Practices for Developers and Policymakers Now

• Coordinate Closely With Grid Operators: Coordinating with grid operators early to facilitate substation and transmission development can help ensure power availability. Ameren and ComEd frequently work with developers to evaluate potential development opportunities. 

• Prioritize Locations With Near-Term Power Availability: Planning data centers in areas with near-term power availability can insulate developers from fluctuations in supply and reduce transmission costs. Developers are already shifting their attention away from downtown Chicago and towards Chicago’s southern suburbs for this reason.

• Examine Co-Location Opportunities: Policymakers are already considering incentives for developers to co-locate future data centers and renewable generation facilities. As these incentives become more likely, developers should consider the feasibility of co-locating future developments. 

• Build Resiliency On-Site: Pairing new data centers with on-site storage capacity may reduce developers’ exposure to long-term capacity shortfalls and facilitate faster permitting and interconnection.

• Design Projects for Flexibility: Working with policymakers and adapting proposed developments accordingly may increase the availability of incentives and the likelihood of successful interconnection. 

• Track State and FERC Policy Developments: Developers should monitor state and federal regulators as they consider expanding nuclear power generation in Illinois. They can also continue to track resource adequacy planning through ongoing stakeholder workshops (register here) and the study’s email distribution list. 

• Support Policy Changes That Accelerate Transmission and Permitting: Developers should support policy changes that will accelerate the development of transmission infrastructure and accelerate the permitting process.