By: KeyCrew Media
When developers compare Midwest data center sites to coastal alternatives, the per-kilowatt-hour rate spread gets most of the attention. According to Logan Freeman, a real estate professional at Midwest CRE Advisors, that narrow focus leaves substantial savings on the table, because the base rate is only the beginning of the cost story. The interconnection and infrastructure costs behind the meter determine whether a deal closes or dies.
The Rate Spread Is Real, But It’s the Smaller Advantage
Kansas and Missouri consistently deliver base utility rates in the four-to-six-cent-per-kilowatt-hour range for large commercial and industrial loads, according to Freeman. Northern Virginia runs seven to nine cents, and Phoenix is trending higher as grid congestion increases. On a 50-megawatt facility running at 85% utilization, Freeman says that spread compounds meaningfully in annual operating costs, and operators notice it immediately in their power usage effectiveness calculations.
The deeper advantage, Freeman argues, is on the interconnection side. In Northern Virginia, the grid is saturated. “Dominion Energy’s queue is years long, and a developer that needs 100 megawatts in Loudoun County is looking at transmission upgrade costs that can exceed $50 million and timelines that make the project economically irrational,” Freeman says. In Kansas, Evergy has been proactively investing in transmission infrastructure, partly in response to data center demand signals. The queue is shorter, upgrade costs are lower, and utility relationships tend toward collaboration rather than rationing.
What the Pro Forma Usually Misses
Several cost lines that developers routinely undermodel can determine whether a Midwest site pencils out or not, and the omissions are not minor. Large load tariffs, which most utilities apply to customers above a certain demand threshold, carry demand charges, capacity reservation fees, and sometimes power factor penalties entirely separate from the energy rate. Freeman says a developer who stops at the kilowatt-hour rate and ignores the demand charge structure is missing a meaningful cost line.
Substation upgrade charges are the item that most frequently destroys pro formas. If a site requires a new substation or significant transformer capacity to deliver the required load, Freeman says that the cost can run from $10 million to $50 million, depending on voltage level and distance. Some utilities fund the upgrade and amortize it into the rate. Others require a developer contribution upfront. “It’s not going to appear in any published rate schedule,” Freeman says. “You have to ask the question explicitly.”
Redundancy costs add another layer. N+1 or N+2 power redundancy, which means adding one or two extra components beyond what is needed to support full capacity, is a standard requirement for most operators. Developers effectively pay for significantly more capacity than they use in steady-state operations. Freeman notes that while N+1 redundancy is cheaper and more energy-efficient than more sophisticated configurations, it still increases demand charge exposure and capital costs for electrical infrastructure in ways that casual underwriting consistently misses.
A 20-Megawatt Comparison That Closed the Argument
Freeman describes a recent evaluation involving a 20-megawatt edge deployment, a Tier III colocation facility serving enterprise clients, that had two finalist sites. One sat in an established Northern Virginia data center corridor, and the other in the Kansas City metro.
On the Virginia side, the base energy rate was approximately 8.5 cents per kilowatt-hour, with an interconnection timeline of 18 to 24 months. Land ran $800,000 to $1.2 million per acre, and the municipality offered essentially no incentive leverage. On the Kansas City side, the base energy rate was 4.7 cents per kilowatt-hour, the utility had available capacity within 90 days of commitment, and land ran $150,000 to $300,000 per acre. The project also qualified for Kansas’s SB 98, a 20-year sales tax exemption that materially affects the total cost of ownership on a large project over its operating life.
When the team ran a 10-year operating cost model at full capacity, the annual energy cost gap between the two sites was substantial. The difference in land basis offset a significant share of other project costs, and the shorter Kansas City timeline meant the operator could reach the market roughly 12 months earlier than the Virginia option.
For a developer with signed letters of intent from enterprise customers, Freeman argues that a 12-month advantage was revenue acceleration, not a theoretical benefit.
How Power Cost Translates to Asset Value
For investors unfamiliar with data center underwriting, Freeman offers a simplified framework. Electricity represents 30 to 50 percent of total operating costs at scale. When power costs drop by half on the same revenue base, net operating income expands, and a higher net operating income at a given cap rate translates directly into a higher asset valuation. That lift comes before accounting for the lower land basis, shorter construction timelines, or the tax incentive stack.
Freeman and his team at Midwest CRE Advisors work with developers evaluating five-to-50-megawatt edge deployments and enterprise infrastructure projects across Missouri and Kansas. Their role is to help operators translate utility relationships and incentive structures into underwriting assumptions that reflect actual delivered costs rather than published rate schedules.
“The Midwest seemingly has won on the fundamentals, not just on a pitch deck,” Freeman says. As grid congestion worsens in established coastal markets and developers prioritize what Freeman calls “speed to token,” the ability to deliver compute capacity to customers with immediate demand, the delivered cost advantage of Midwest sites may draw operators who previously defaulted to Virginia or Phoenix without running the full comparison.
Midwest CRE Advisors is a Kansas City-based commercial real estate firm specializing in edge data center site selection, industrial outdoor storage, and traditional CRE investment across the Midwest. The firm works with infrastructure developers, investors, and landowners across Kansas, Missouri, Oklahoma, Nebraska, and Iowa.
Disclaimer: This article is based on information provided by the expert source cited above. It is intended for general informational purposes only and does not constitute legal, financial, or real estate advice. Readers should conduct their own research and consult qualified professionals before making any real estate or financial decisions.
