Black Hills signs Google power agreements and plans $1.8 billion investment

Black Hills plans to invest $1.8 billion in natural gas generation for a Google data centre in Cheyenne, Wyoming, under agreements effective 30 September 2026 and running through 2048, the company said in its 6 October announcement. The agreements cover power supply and the management of other energy resources for the planned site.

Black Hills plans 564 MW at Cheyenne Prairie

Black Hills says it will spend the $1.8 billion between 2027 and 2029 to build 564 MW of company-owned generation at its existing Cheyenne Prairie Generating Station. A non-regulated affiliate will own the new gas capacity, which the company intends to use in supplying the data centre.

The company says it will provide up to 590 MW of grid-connected service through its own generation and other supplies. Of that amount, it plans to source the remaining 26 MW beyond the new plant’s nameplate capacity through market purchases and retail utility service under an applicable industrial tariff.

Black Hills also expects to manage the output of approximately 2.1 GW of Wyoming-based resources contracted from third parties through a privately managed microgrid. It anticipates a total resource mix of 2.7 GW, including reserve margins, for the project. Its role will include coordinating dispatch, grid operations and reliability services across those resources and market purchases, the company says.

The company expects the planned centre to begin receiving energy service in late 2027 and reach peak load in 2030. Those dates also set the period over which Black Hills expects revenue from managing the third-party resources to increase.

Google agreements extend through 2048

The signed arrangements comprise a Large Power Contract Services Agreement and a Generation Facilities Agreement, Black Hills says. Their terms run through 2048. The company expects to start earning a return on its generation investment when construction begins in 2027.

Black Hills says microgrid management fee revenue should begin in late 2027 and rise according to a ramp schedule written into the services agreement. The negotiated fee is based on a contracted minimum peak load that the company expects to increase as the project ramps up.

Linn Evans, Black Hills’ president and chief executive, said the agreements and supporting regulatory mechanisms are structured for Google to bear all costs of serving the data centre throughout the project’s life. Black Hills says the structure prevents those costs from shifting to existing retail customers. It expects to continue collecting management fees and earning a return on its generation investment beyond 2030, with that investment fully depreciated by 2048.

Black Hills shares rose 4.6% in post-market trading on 6 October after the announcement, Seeking Alpha reported.

Black Hills projects $150 million in 2030 income

Black Hills expects the project to contribute approximately $150 million of net income in 2030. It also projects approximately $2.4 billion of unlevered free cash flow through 2048, net of the $1.8 billion generation investment.

The company expects to finance construction with a combination of cash generated by the project, debt and other financing alternatives. It says the agreements provide for the contractual pass-through of debt costs and a cash return on the investment during construction. Black Hills is evaluating its financing options with a focus on earnings accretion and maintaining its investment-grade credit ratings.

Black Hills says Google has provided $399 million in refundable advances to procure equipment with long lead times under a generation reservation agreement. Black Hills expects to repay those advances by 30 June 2027.