Texas data center surge raises bubble fears

Texas is facing an unprecedented wave of data center development requests as companies chase the artificial intelligence boom. Energy experts say the volume of proposed projects far exceeds what the state can realistically build or power by the end of the decade.

Cheap land and relatively low energy costs have drawn developers to Texas. The resulting demand has flooded the process for connecting new projects to the electric grid.

More than 220 gigawatts of large projects have requested grid connections by 2030, according to December data from the Electric Reliability Council of Texas. ERCOT manages the state’s power grid.

More than 70% of those requests are from data centers. The total far exceeds Texas’ record peak summer demand of about 85 gigawatts and its available generation of roughly 103 gigawatts.

Energy experts say many of the projects are speculative. That makes it difficult to determine how much demand will actually materialize.

Joshua Rhodes, a research scientist at the University of Texas at Austin, said the scale of the requests resembles a bubble. He said there is no physical way to build that much infrastructure so quickly.

Data center requests surged after a 2023 state law required uncontracted projects to be included in demand forecasts. The number of large projects seeking connections has nearly quadrupled this year.

More than half of the projects, representing about 128 gigawatts, have not yet submitted studies for ERCOT review. About 90 gigawatts are under review or have approved planning studies.

Only about 7.5 gigawatts of data center projects have been approved or connected so far. Rhodes said Texas can meet that level of demand and possibly grow to 20 or 30 gigawatts by 2030.

State officials have taken steps to filter out speculative proposals. A law passed in May requires developers to pay $100,000 for an initial study and prove site control. The Texas Public Utility Commission has also proposed requiring data centers to post $50,000 per megawatt in security.

Experts warn that investors could bear losses if infrastructure is built for projects that never materialize. In Texas, most new power plant costs are borne by investors, limiting the risk to consumers.

Electricity prices in Texas rose about 5% year over year in September, below the national average increase, according to federal data.