A colocation quote for AI hardware usually shows up as one number: so many dollars per kilowatt per month. It looks like a price for electricity. It almost never is.
That number is a reservation fee for space, cooling, and a guaranteed slot of power delivery. The electricity is billed on top, separately, at cost. I’ve read enough of these quotes now to know that two providers with the same headline rate can send you very different bills. It comes down to what each one means by “kW,” how they meter power, and what they bill once versus every month. You don’t need an engineering background to sort this out. You just need to know which number you’re looking at.
The reservation fee is not the power bill
AI-ready colo space is commonly quoted around $200 to $300 per kW per month for space, cooling, and capacity. Power is billed separately, passed through at the facility’s utility rate.
So that figure is not your electricity cost. It’s what you pay to reserve the ability to run the load: the floor space, the power distribution down to your racks, and the cooling to get the heat out. Power rides on top at whatever the local utility charges, plus whatever markup the provider adds for billing. Sometimes that’s a flat percentage. Sometimes it’s nothing.
This is why a lower per-kW rate isn’t automatically cheaper. A provider sitting on expensive power can post an attractive capacity fee and let the power line do the damage later. The capacity number is the one people compare across quotes. The power number only shows up on the invoice.
Committed versus used: you pay for the reservation
The kW figure in a colo contract is almost always committed, not metered. You reserve 1 MW, and you pay for 1 MW whether you draw all of it or a fraction. That’s the opposite of how most people think utility billing works, and it’s the most common point of confusion in a first colo deal.
Take a 1 MW committed hall at $250/kW-month: 1,000 kW x $250 = $250,000 per month, before you draw a single kilowatt-hour.
Now say the deployment ramps slowly and you’re only drawing 700 kW of IT load six months in. The capacity fee does not drop to 70 percent of $250,000. It stays at $250,000, because the provider reserved 1 MW of space, cooling, and power delivery for you either way. Only the power line, billed at cost, tracks what you actually draw.
Committed and used being different numbers is the default in this market, not an edge case. Confirm it in writing before you sign.
How PUE and cooling actually get billed
Power usage effectiveness, PUE, is total facility power divided by the power that actually reaches the IT equipment. A PUE of 1.2 means for every 1 kW reaching your GPUs, the facility draws another 0.2 kW to cool and support it. The question most quotes don’t answer: which side of that ratio are you billed on?
Some providers meter downstream of cooling. You pay only for what your servers draw, and the cooling overhead is folded into the reservation fee. Others meter upstream at the utility feed, and the full facility draw, cooling included, lands on your power line.
Both get described as “power billed at cost.” They produce different bills for the same IT load. If a 1 MW committed hall runs full IT load at a PUE of 1.2, the facility draws 1,200 kW, not 1,000 kW. Is that extra 200 kW on your meter, or already priced into the $250/kW-month fee? Ask in exactly those words. The contract rarely spells it out on its own.
The example, worked all the way through
Here’s a 1 MW committed hall at $250/kW-month, with power priced where large industrial users in Quebec can typically get it: roughly 6 to 7 cents CAD per kilowatt-hour. That’s cheaper than much of Europe and below what a buyer usually sees in Ontario. Ontario is harder to reduce to one figure, because it depends more on account-specific time-of-use structure and demand charges.
Capacity fee: 1,000 kW x $250/kW-month = $250,000 USD/month, or $3,000,000 USD/year, no matter what you draw.
Power, at full committed IT load and a PUE of 1.2, so a facility draw of 1,200 kW: 1,200 kW x 730 hours/month (8,760 hours/year divided by 12) x $0.06 CAD/kWh = $52,560 CAD/month. At the top of the range, 7 cents CAD/kWh, the same draw is $61,320 CAD/month.
Notice the capacity fee is in USD and the power line is in CAD. That’s how these deals get quoted when the facility is in Canada and the contract is priced in US dollars: two line items, two currencies. If a quote blends them into one number without stating the currency or the exchange rate, it has made an assumption for you. Keep the two lines separate until you agree on the conversion, in writing.
Back to the slow ramp. If only 700 kW of the committed 1 MW is drawing power in month six, the capacity fee is still $250,000 USD/month. The power line shrinks to roughly 840 kW facility draw (700 kW IT load at the same 1.2 PUE) x 730 hours x $0.06 CAD/kWh, about $36,792 CAD/month.
The capacity fee is the fixed cost of the reservation. The power line is the only part that moves with what you use.
The charges that live outside the kW number
A handful of recurring and one-time items sit outside the per-kW figure. This is where a clean-looking quote picks up real money.
Cross-connects. Physical links from your cage to a carrier, an exchange, or another tenant. Usually a one-time install fee plus a monthly charge per connection. If you have real external connectivity needs, you’ll end up with several.
Remote hands. Technician time for anything you can’t do yourself on site, billed hourly once you’re past the monthly allowance. Ask what the allowance and overage rate are. A rough first quarter of installs and fixes burns through a small allowance fast.
Install and provisioning. A one-time charge to bring racks online: cabling, power-up, initial testing. Sometimes it’s bundled into the first invoice, sometimes billed separately. Ask which.
Deposits and term. Multi-month deposits, or a letter of credit instead of cash, are standard at this scale. Terms often run three to ten years and usually carry an early-termination exposure tied to the capacity reserved and the time left. Ask what that exposure is in dollars, not as a clause number.
Density, liquid cooling, and ramp schedules
Three more items change the shape of the quote, not just its size.
Power density per rack. Current rack-scale AI systems commonly run well above 100 kW per rack. A legacy rack might run 5 to 10 kW. If a facility quotes a kW price without confirming it can deliver that density per rack, instead of spreading the same total kW across more racks than you planned, it may be quoting something it can’t deliver on your floor plan.
Liquid-cooling readiness. Does the hall already have the manifolds and distribution units for direct-to-chip or immersion cooling, or is that a capital project the provider still has to build? Some price it as a premium per kW, some bundle it into the base rate. Ask directly whether the quote assumes air or liquid. Retrofitting after you sign costs more than negotiating it up front.
Ramp schedules. Nobody goes from zero to full committed load on day one. Ask whether the capacity fee bills in full from contract start or steps up on a schedule tied to install milestones. Both are normal. Which one you sign changes your cash flow for the first six to twelve months, and it’s negotiable, not a fixed feature of the market.
How to normalize two quotes
You don’t need to read a single-line diagram. You need to ask six questions of every quote before you compare headline numbers.
- Confirm whether the quoted $/kW-month figure covers space and cooling capacity only, power billed separately, or an all-in number, in writing.
- Confirm whether the kW figure is committed capacity or metered usage, and what happens to the fee if actual draw comes in below committed during a ramp.
- Ask which side of the PUE ratio the power meter sits on: IT load only, or full facility draw including cooling overhead.
- Get cross-connect, remote-hands, and install charges itemized separately, with the remote-hands allowance stated in hours per month.
- Confirm deposit size, term length, and the dollar exposure of early termination.
- Confirm the facility can deliver the power density per rack your hardware needs, and whether liquid-cooling infrastructure is already built or still to negotiate.
If you want the full picture of what a cluster costs to run, colo and power lines included, that’s in what it actually costs to run a GPU cluster. And before you trust the price sheet, check the provider behind it: how do you vet a GPU cloud provider before you wire the deposit.