Analysis by Energy Workforce President Tim Tarpley
In what I would consider a surprise move, Governor Abbott this week announced a moratorium on approving new data center construction in the state. The announcement indicates that the moratorium will remain in place until regulatory agencies can audit all proposed data centers and their potential impacts on the state’s electric grid. It is unclear how long this audit will take; however, the move is somewhat unexpected and significant because it represents the most substantial effort by Governor Abbott to slow data center construction in Texas. Texas is also seen by many as the leading bellwether state for industrial development, so this decision may have implications far beyond Texas state lines.
Specifically, the Governor is asking the Public Utility Commission of Texas and the Electric Reliability Council to ensure that data center developers provide specific information on the tax breaks they will receive, power use and generation, water use and cooling, efforts to reduce impacts on local communities and ultimate ownership of the facilities. The memorandum states that projects that fail to meet the standards of this audit should be denied connection to the grid. The number of pending projects that this moratorium could impact is striking. ERCOT is currently tracking more than 1,800 projects in the queue, which represent over 474 gigawatts of electricity demand. To put that in perspective, that is five times more than the highest demand day on the Texas grid in history. Another way to look at it is that it is enough to power roughly 106 million to 142 million homes, which is more than the total number of housing units in the United States. Texas is currently the 2nd largest market for data centers with 355 operating, which is 2nd only to Virginia. Texas has also been seen by many as the primary area for expansion; this is for a number of reasons, but access to plentiful natural gas for power generation is one of the most significant.
What does this moratorium mean for us? First, many of the power demand projections in recent years have been fueled by an assumption that data centers would continue to be built with little pushback, especially in leading states like Texas. This action by the Governor will certainly have a chilling effect on the exuberance that has been fueling investment in their development and, in turn, investment in gas production, which was anticipated to fuel much of this new power capacity. How impactful will this moratorium ultimately be? We don’t really know yet; it could be quite impactful if it ends up lasting a long time and/or ends up blocking a significant portion of these new planned projects. Politics is also certainly at play here. Data center construction is quickly becoming the hot-button issue in many races, and we will have to wait and see if that continues past the midterms. If it does, we could see the moratorium last and even more pop up around the country.
Another important thing to consider is that this moratorium (and others like it) could help spur additional investment in off-grid power solutions, an area that many EWTC companies are engaged in. Notably, the moratorium says that data centers that are built cannot connect to the grid, not that they cannot be built at all. Off-grid power solutions could ultimately provide a workaround to these kinds of limitations. Time will tell how this all develops, but one thing can be certain: the political back-and-forth around data center development is not going away anytime soon. Notably, opposition does not appear to be following party lines like many other hot-button issues; opposition appears to be coming from corners of both parties and in multiple geographic areas. Given how much this issue could affect energy demand, it is something we must watch closely.
Tim Tarpley, Energy Workforce President, analyzes federal policy for the Energy Workforce & Technology Council. Click here to subscribe to the Energy Workforce newsletter, which highlights sector-specific issues, best practices, activities and more.
