Texas Faces Growing Energy Challenges as AI Data Centers Expand
The rapid expansion of data centers, essential for powering the modern internet and artificial intelligence, is putting unprecedented strain on Texas’ power grid. This state, known for its business-friendly policies and abundant energy resources, is now grappling with the immense energy demands of these facilities.
Real estate companies backed by private equity firms like Blackstone, alongside tech giants such as Microsoft and Alphabet, have significantly increased their investments in AI-focused data centers. The Dallas-Fort Worth area has become the second-largest U.S. market for leased data center space, according to CBRE Group Inc.
To meet the soaring energy requirements, the Electric Reliability Council of Texas (Ercot) projects the state will need to support 152 gigawatts of demand by 2030, nearly double the current capacity. This surge is attributed to data centers, crypto miners, population growth, hydrogen production plans, and the electrification efforts of oil and gas companies.
Texas’ power grid has already shown vulnerabilities. In 2021, a severe winter storm left more than 4.5 million homes without power. More recently, Hurricane Beryl caused widespread outages, impacting nearly 3 million customers, including a major data center operated by Lumen Technologies Inc., which had to switch to backup generators.
“I am concerned about data centers and the consumption of power as AI computing becomes part of our everyday life,” said state Senator Nathan Johnson, whose district includes parts of Dallas-Fort Worth. “We have never dealt with electrical growth on this scale and speed.”
Even Lt. Gov. Dan Patrick, a staunch proponent of business-friendly policies, has voiced concerns about the rapid growth of data centers. “Bitcoin miners and data centers produce very few jobs compared to the incredible demands they place on our grid,” Patrick stated. “We want data centers, but it can’t be the Wild Wild West of data centers and crypto miners crashing our grid and turning the lights off.”
Ercot’s 2022 rules mandate that any data center requiring more than 75 megawatts of power, sufficient to power about 15,000 homes, must obtain special approval. While Bitcoin miners can shut down operations when demand spikes, data centers lack this flexibility, posing a greater risk to grid reliability.
The Texas grid is particularly vulnerable from 8 p.m. to 9 p.m. when solar energy supply diminishes, and if there’s insufficient wind to generate power. According to Ercot, there is a 16% chance of a power emergency during these hours in August, and a 12% chance of rolling blackouts. Winter demand has also become challenging due to extreme weather.
“Texas wants to figure it out because it wants to win the data center investment journey, and I think they will,” said Ram Krishnan, COO of Emerson Electric Co. “But is there a coordinated plan for Texas to figure it out? I haven’t seen it.”
The growing appetite for data center space has also impacted other real estate sectors. “We look at the map, and brokers tell us, ‘No, that land went to a data center, and that one did, too,’” said Fernando De Leon, founder of Leon Capital Group. “You’re looking at it and saying, ‘Wow, that’s 20 land parcels that are a thousand acres that all went to data centers, and they’re gonna consume unimaginable swaths of energy.’”
Utility operators are struggling to keep pace with the demand. “The loads are beyond anything we’ve ever seen,” said Matt Mitchell, spokesperson for Austin Energy. Governor Abbott has proposed doubling the Texas Energy Fund to $10 billion to support new natural gas plants. Developers have already shown interest in $39 billion of funding.
While alternative energy sources like small modular nuclear reactors could eventually support data centers, they won’t be operational on an industrial scale until the next decade. “For energy, from now to 2030 is very short-term type of planning,” said Pablo Koziner, chief commercial officer of GE Vernova Inc.
Texas remains open to expanding gas power, but the average gas plant takes three to four years to complete, while new transmission lines can take up to six years. In contrast, massive data centers can be built in just a year. Some developers are considering alternative locations, including the Midwest and cities like Reno, Nevada, as well as other parts of Texas.
“The limitations here are not going to be resources on the data center owner side,” said Chris Cornick, head of megaprojects at Ferguson Plc. “The construction market will do our best to keep up. It will be the availability of power.”
