The Zhitong Finance App learned that just as American voters were about to walk into the polling stations, Governor Greg Abbott, who once hailed Texas as an “artificial intelligence (AI) development center,” has now begun to set up barriers in an attempt to slow down data center construction, and this effort has begun to bear fruit.
Previously, Texas had always been expected to replace Virginia as the global data center capital. But as an unexpectedly strong Democratic rival made Abbott's path to a fourth term and the longest serving governor in Texas even more difficult, he changed his strategy. Abbott said that until the Texas power grid operator completes the audit of the relevant applicants, the state's environmental regulators will no longer issue licenses to data centers, and these applicants are all awaiting approval to use electricity.
As Abbott suddenly became a data center supporter to skeptic, developers began considering other regions. According to people familiar with the matter, Utah and Georgia have become destinations for discussions within the industry, and Iowa is also seen as an alternative site for these projects.
This shift could threaten the speed of data center development in Texas. Even the most powerful companies have felt this impact. The bank is delaying the sale of bonds linked to a Texas data center that will be leased to Anthropic, which is preparing what could become the largest initial public offering (IPO) in history. Anthropic said this week that regulations in Texas limit the expansion of computing power that its artificial intelligence models rely on.
Texas attracts data center developers because it has sufficient local land resources and can generate electricity using energy such as solar, wind, and natural gas. Curt Holcomb, head of the Texas data center business at CBRE (JLL), said the Texas power grid is capable of adding more capacity than any other region in the US.
But now, investors and bankers are trying to figure out what the governor's actions mean for the future of the Texas data center industry. A person familiar with the matter said that lenders are scrutinizing companies seeking financing for Texas data center projects, adding that more speculative projects would be difficult to attract investors.
Jack Painter, vice president of energy and utilities business at Washington-based consulting firm Capstone, said Texas “remains one of the most attractive data center markets in the US.” But he added, “This doesn't mean that some of the projects currently in the ERCOT queue will not be considered moving to other locations, such as Arizona, Utah, or Georgia.” The ERCOT he meant, the Texas Electricity Reliability Commission, is responsible for operating the state's grid.
A spokesperson for Abbott's office said, “Governor Abbott's position is very clear; Texans are a priority. The data center must cover its own costs, protect our power grid and water resources, and complete audits required by the state government. Until then, no state agency will issue the relevant license, and any project that fails to meet these standards will be denied.”
Delays in approval of developer complaints
Some developers have complained about delays in approval. They said the delays caused by these audits are jeopardizing their transactions.
This includes the land developer Tract. The company had anticipated that its proposed 500-megawatt data center near San Antonio would be approved to connect to the grid, but was told last month that state regulators wanted to make further assessments of the project's site selection.
The Colorado-based company owns a 265-acre development in Medina County. The project is one of 14 active projects currently being carried out in 7 states, and is now mired in controversy with ERCOT. “If any delay in this process continues until ERCOT has completed the audit and verification process, it will cause irreparable damage,” Tract wrote in a complaint filed with the Texas Public Utilities Commission on September 30. The company said asking it to conduct more research “is not just a matter of a few months of delay, but could cause a project to completely collapse.”
Denver-based data center developer Rowan Digital Infrastructure is also questioning ERCOT's review. Just over a year ago, the company received initial approval for the “Stampede Project.” The project is part of a data center campus north of Austin and has a total investment of $4.2 billion. Rowan wrote in a complaint that the suspension created “a significant risk that the project may not be able to obtain additional financing due to regulatory uncertainty.”
political reasons
Some analysts and developers believe Abbott's actions may be more of a political strategy than a real attempt to slow the state's embrace of data centers.
The data center project has already caused discontent among most voters. A poll by the University of Texas and the Texas Politics Project found that 57% of Texas residents oppose building data centers in their own communities.
The governor appears to be responding to bipartisan voters' aversion to the widespread existence of data centers. Many developers believe that the suspension of approval in Texas is a political strategy, and that this measure will disappear after the midterm elections are over, but they are also aware that it is necessary to adjust the way they lobby local governments and skeptical residents.
Data centers can generate some jobs and generate billions of dollars in tax revenue for cash-strapped local governments over time. Although many data center projects are eligible for tax breaks in Texas, voters are concerned about their water and electricity usage. Some also believe that data centers are powering technology that could take away people's livelihoods. Nowhere is this contradiction more evident than Texas, which has the largest number of data center projects in the US.
Democratic gubernatorial candidate Gina Hinojosa used this discontent during her campaign to call for a moratorium on data center development. Her approval rating in the polls lags only a few percentage points behind Abbott, giving her a real chance to win the position of governor that the Democratic Party has not won since 1990.
Gina Hinojosa said earlier this month: “Greg Abbott's tough remarks about data centers were nothing more than an election year political show. Abbott used the nation's most lucrative tax benefits to attract these data centers to Texas, then pretended to suspend approval in order to obtain political benefits.”
Raul Martynek, CEO of Dallas-based data center developer DataBank, also believes there are “political reasons” behind Abbott's license freeze. Raul Martynek said, “He needs to delay this until after the election and then he can restart from there.”
DataBank has now developed nearly 350 megawatts of data center facilities in Texas, which is large enough to power nearly 90,000 Texas homes. Despite new regulations and lengthy grid access queues, the company is advancing the Texas project and expects Texas to remain one of the top destinations for new data center facilities. Raul Martynek believes that increasing scrutiny will eliminate some of the more speculative developers. These developers have submitted a large number of requests for electricity, but they have insufficient capacity to complete the relevant projects.
Additionally, the implementation audit helped delay one of ERCOT's reports. Originally, the report was to be released before the November 3 election and predicted the electricity needs of high-energy industrial users, including data centers.
Jack Painter said, “Any headlines about this number are likely to influence his re-election campaign and further infuriate voters.” “Ultimately, the audit delayed these headlines until after the election.”