As Data Centers Zap Power, Some Pols Ponder The Unthinkable: Pulling The Plug
It isn’t every day that Texas legislators liken an industry to pigs at the trough or accuse it of “crashing our grid and turning the lights off.”
But it is happening in the famously business-friendly Lone Star State as lawmakers turn increasingly hostile toward a real estate asset class playing an outsized role in nearly doubling statewide demand on its mostly self-contained power grid over the next six years.
Data centers, which house thousands of servers providing the computing power for major corporations, are a booming industry in Texas. Much of the growth is fueled by demand from the world’s largest tech companies — Amazon, Microsoft, Google and Meta — which need facilities to support their massive cloud businesses and, increasingly, artificial intelligence.
Texas has also emerged as the undisputed U.S. capital for bitcoin mines, specialty data centers devoted to processing cryptocurrency transactions.
All that growth is expected to account for more than half of a projected power demand spike that hit legislators like a ton of bricks this summer when the Electricity Reliability Council of Texas presented new and startlingly higher numbers.
And it came as the state was making progress toward shoring up its grid after a catastrophic 2021 winter storm shut it down, killing hundreds and wreaking billions in property damage.
Texas isn’t alone in worrying about energy stability. National projections show usage from data centers will double by the end of the decade and rise even further in industry hot spots like Dallas-Fort Worth. Some jurisdictions have imposed limits, and the Biden administration made developing new solutions to the industry’s increasingly acute energy crisis a national priority.
Yet the unexpected surge has Texas lawmakers reeling, asking questions about the worth of huge power consumers to the economy and calling for ways to put the brakes on an industry speeding ahead faster than anywhere else in the U.S. outside of Northern Virginia.
“I’m more interested in building the grid to service customers in their homes, apartments, and normal businesses and keeping costs as low as possible for them instead of for very niche industries that have massive power demands and produce few jobs,” Texas Lt. Gov. Dan Patrick said on social media platform X after ERCOT presented the new projections.
“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.”
The debate has refocused attention on the state’s fragile grid and limited energy infrastructure. And the avalanche of new demand is spiking fears of massive bills ahead for residents and businesses.
“It has huge policy implications,” Texas Sen. Nathan Johnson, a Democrat from Dallas, said at a June hearing. “And every assumption that we've made over the past four years is now called into question.”
From Dozens Of Megawatts To Hundreds
Dallas is the country's second-largest data center market and one of the industry’s traditional hubs. More data center firms are headquartered in Dallas than any other city.
At the end of the second quarter, there were 966 megawatts of total inventory, with 339 MW under construction and 3,091 MW planned in DFW, according to JLL. The total number of megawatts in use by data centers in the Dallas market is up 77% since 2020, according to CBRE.
Meanwhile, the Austin-San Antonio region is considered the largest of the nation’s “secondary” data center markets. It was the fastest-growing data center market through the first half of this year, the CBRE report says, and its combined under-construction activity more than quadrupled from a year earlier.
Data centers are attracted to sites with low power costs, targeted tax incentives and robust optical fiber network infrastructure nearby. Many parts of Texas hit all these marks.
But the new wave of data center demand caught ERCOT and utilities across the nation by surprise.
Data centers will represent 6.6% of electricity consumption in the U.S. by 2028, up from just 1.5% in 2018, according to TD Cowen. Other studies predict the industry’s share of power use will be as high as 9.1%.
In Texas, 60% of the 40 GW of new load expected in the months ahead consists of new data centers and bitcoin mining, according to Texas Public Utility Commissioner Lori Cobos. But what is catching providers most off guard is that each new facility is using far more power than ever before.
The size of data center campuses, measured in the amount of energy they consume, has shot up over the past four years from dozens of megawatts to hundreds, with major tech companies now looking to deploy more than a gigawatt of capacity at a time.
The reason is AI. High-performance computing equipment, such as the graphics processing units made by companies like Nvidia, use far more power than traditional data center servers. A Google search using AI computing consumes around 10 times more energy than a traditional search.
“We're not talking about 50-MW data centers anymore,” said Enchanted Rock Chief Commercial Officer Allan Schurr, whose firm partners with large energy users to locate on-site power generation. “We're talking about 500-MW or gigawatt-scale data centers.”
‘Too Many Pigs At The Table’
“Five years ago, we didn't see AI-type data centers coming on the grid. No one was talking about that,” ERCOT Chief Operating Officer Woody Rickerson told lawmakers at a June Senate Business and Commerce Committee hearing when lawmakers first learned expectations about future power demand had been upended.
“Those are extremely large. Just for comparison's sake, the city of Lubbock is about 700 MW, and some of these AI data centers are over 2,000 MW, so we're talking about putting three Lubbocks in 24 months at a site.”
When Texas demand hit a new high of 85 gigawatts in 2023, the hottest year recorded in the state, ERCOT expected demand to rise to 110 GW by 2030. After changing its projection methodology in April, it raised that number to 150 GW.
The new projection brought worries about the health of the Texas grid to a head, seemingly sending some lawmakers into panic mode. Some wondered aloud whether the state could stop data centers and bitcoin mines from coming at all.
“AI’s just come on the scene, but who knows what’s next, even after that, that will consume even more?” said Sen. Donna Campbell, a Republican whose district includes parts of Austin and San Antonio. “Can we just say, ‘No, you can’t come’? Can we just say no? Too many pigs at the table just run out of food if they don’t come with their own trough full of food.”
Much of the concern stems from 2021's Winter Storm Uri, which laid bare the Texas grid's vulnerability. More than 4 million homes and businesses were left without power amid freezing temperatures.
Power demand before Uri-related blackouts began was 69 gigawatt-hours, a new winter high. The Texas grid can typically handle 70 GWh, but 14 GW of natural gas and coal-fired power plants were offline for maintenance, a common practice during winter months.
But this time, disaster ensued. In addition to loss of life, by March 2022, the Texas Department of Insurance had tallied 510,772 freeze-related insurance claims, with an expected payout total of $11.2B. The average incurred loss for commercial property was about $149K.
ERCOT, the Public Utilities Commission and lawmakers responded by going all out to ensure adequate generation resources would become available when the system is under stress. But with the gears of that fraught process in motion, the unexpected wave of electrical demand from data centers and bitcoin mines tossed a new wrench in the works.
There is a chance the state is “building a system that won’t fit,” said state Sen. Robert Nichols, a Republican from Jacksonville.
“This is so far different from anything we’ve ever seen.”
Fear And Black Swans
But is the influx of data centers actually increasing the risk of catastrophic blackouts across Texas? The answer is complicated.
On one hand, experts refute the notion that a data center with the power consumption of a small city could suddenly switch on and take grid operators by surprise, plunging large swaths of Texas into darkness. Connecting a data center to the ERCOT grid isn't a free-for-all — it requires an extensive approval process, and permission is only granted once sufficient infrastructure is in place.
Still, energy experts like Enchanted Rock’s Schurr acknowledge that the ERCOT grid becomes more vulnerable as the addition of data centers and other large industrial power loads keeps demand on the grid in the upper range of its capacity. Grid operators must make sure there is always enough capacity operating or ready to operate for anticipated power demand, with extra in reserve in case of plant failures or other unforeseen events.
The problems come when an event like Uri reduces grid capacity, but data centers are already encroaching on the reserve margins of extra power, Shurr said.
“We have to plan for the extreme events, the black swans,” he said. “If data centers are the cause of squeezing that reserve margin, then the reliability during those extreme events can be at risk.”
Many in the industry are quick to point out that data centers have their own backup electricity sources on-site, typically in the form of diesel or natural gas generators, allowing facilities to remain fully operational off grid. Nearly every data center in Texas remained online during Winter Storm Uri, and their on-site power meant they didn’t contribute stress on the already overmatched ERCOT system.
But much of the concern around data centers’ impact on the Texas power grid has focused on one contentious corner of the broader data center ecosystem: bitcoin mines.
Unlike traditional data centers, bitcoin mining facilities don’t use the same amount of power all the time. As long as a miner’s power costs are less than the price of bitcoin, a facility will run at full tilt. But during times of energy scarcity, when the price of power goes up, bitcoin miners typically shut down entirely, pulling potentially hundreds of megawatts off the grid.
This pattern of electricity usage aligns with what ERCOT’s operators want. Yet it can also raise the risk of catastrophic grid failures. ERCOT and utilities have little transparency into bitcoin miners’ operations, making real-time predictions about energy demand challenging.
And if grid operators don’t correctly anticipate when bitcoin miners will shut down during periods of high demand, disaster can follow.
“It's a little bit of a hold-your-breath moment when we go into scarcity, not knowing for sure what that demand response is going to look like from one day to the next,” ERCOT’s Rickerson told lawmakers in June.
However, the characterization of bitcoin mining as an inherently destabilizing force on the state’s energy infrastructure has also received pushback from miners and ERCOT leadership, who say bitcoin miners can be part of the solution.
ERCOT has implemented demand response programs, in which major power consumers agree to effectively give their allotted power back to the grid by dramatically reducing electricity consumption during times of peak demand — for a price. Bitcoin mines are a natural fit for demand response.
But only about a third of Texas bitcoin mining operations are in such a program, according to Texas Blockchain Council President Lee Bratcher.
ERCOT leadership and mining groups like Bratcher’s are aligned in wanting to see all miners become so-called controllable load resources, giving ERCOT transparency into their operations and a say in when they disconnect during periods of high demand. These facilities could become an important stability resource, effectively adding gigawatts of emergency capacity to the grid.
Who’s Stuck With The Bill?
Texas lawmakers aren’t just worried about data centers and crypto mines making the state’s electricity less reliable. They’re also worried about them making it more expensive.
The flood of massive data centers and bitcoin mining developments seeking connections to the ERCOT grid far exceeds the capacity of Texas’ existing power infrastructure, particularly the transmission lines and substations needed to deliver power to these projects. ERCOT and its associated utilities, like all U.S. power providers, are legally obligated to fulfill these requests.
That means spending billions to expand grid capacity.
ERCOT already has $14B worth of transmission projects in some stage of preconstruction or development, and a significant increase in spending is needed to meet the wave of demand projected to be just around the corner, ERCOT’s leadership told lawmakers. In theory, the cost of these capital projects will be covered by data centers paying for the power they use.
But if billions of dollars are spent building transmission lines for a data center campus that never ends up being built or uses just a fraction of the electricity its developers asked for, the huge cost of these projects would be borne by all Texans in their power bills.
State lawmakers were quick to raise concerns about the potential for higher power rates, which they said would have the greatest impact on the state’s most vulnerable households.
“I want to make sure that we don't increase the cost of everybody who can least afford it for a specialized project that’s for industries that are very profitable,” Sen. Jose Menendez, a San Antonio Democrat, told ERCOT leadership at the hearing.
Clouding the issue, ERCOT has little insight into how much of its record interconnection queue will materialize. In the data center industry and among utilities, there is broad consensus that much of the projected increase will never come to fruition — as much as 80% of ERCOT’s projection, Bratcher said.
A data center developer might apply for interconnections for 100 MW in five potential locations but only plan on building at one of them. That looks like 500 MW to ERCOT, but in reality it would only be 100 MW, Bratcher said.
Adding to this “phantom load,” landowners or developers with no relevant experience have made large connection requests for properties to boost land values and potentially flip the parcels to data center firms.
“In every single market, we've seen a flood of private equity guys and landowners who go to the utility and get a power study for 500 MW for a farm just so that land’s worth six times as much,” JLL U.S. Data Center Managing Director Andy Cvengros said. “Utilities are looking at us to help them understand who's real and who’s not.”
Some steps are already being taken to help ERCOT make more accurate demand projections and separate the wheat from the chaff, hoping to lower the risk Texans will be stuck with the bill for billions in unneeded transmission infrastructure.
Oncor, which transmits and delivers electricity to much of the Dallas-Fort Worth region and parts of the Permian Basin, started taking advantage of a law passed last year allowing transmission providers to give input on which loads they felt were likely to connect, Oncor Vice President Ellen Buck said during the Senate hearing.
Oncor determined that only 25 GW of the 47 GW seeking connections were likely to move forward after examining whether the requesting entity was legitimate, like a major tech firm or known developer, and whether they had started making financial commitments toward their projects, such as securing property or ordering equipment.
“What we're looking at is, what's the customer's evidence of skin in the game?” Buck told the committee.
There is also support for charging potential connectors large fees, securing another form of collateral or requiring expensive studies as part of the application to request a connection. Those measures, widely used in other markets, could make speculative requests less likely.
“As a data center industry, as a bitcoin mining industry, we are all supportive of ERCOT charging fees for loads to be in the interconnection queue because we understand how important it is for them to have an accurate picture of what load is coming,” Bratcher said. “If that hurts our bottom line, then so be it.”
Reaching A ‘Tipping Point’
The increasingly hostile rhetoric from Texas lawmakers may signal a changing political landscape for the data center and bitcoin mining industries, which until recently were welcomed with open arms.
The severest suggestions floated by elected officials, banning bitcoin mining or new grid connections for data centers, have yet to manifest as concrete legislative proposals. But more limited bills were introduced, including a measure to limit bitcoin miners’ participation in demand response programs.
Meanwhile, there is a sense that the tone of the conversation around data centers and crypto mining in Austin is taking a rapid turn toward the negative.
“Suddenly they flipped on crypto a few months ago,” said University of Houston energy fellow Ed Hirs, who predicted in 2013 that ERCOT’s deregulated grid would result in power generation and distribution shortfalls. “I guess they read the pieces I've been putting out.”
Texas would hardly be the first place where data centers have worn out their welcome. That pattern has played out in a growing number of development hotbeds, where a data center building boom has sparked political efforts to control or limit the industry’s growth.
While specific grievances driving opposition vary by market, concerns over the impact of skyrocketing electricity demand have led government officials and utilities in places like Columbus, Ohio, and Dublin to pursue what are effectively moratoriums on new data center development.
The risks data centers pose to the reliability and price of electricity in Texas may be solvable through policy and regulatory changes. But industry players like Bill Thomas, chief energy officer at data center campus developer CleanArc, caution that lawmakers and ERCOT could follow other jurisdictions' lead and decide that data centers just aren’t worth the trouble.
“I don't know what that tipping point is,” Thomas said. “Everything's bigger in Texas, but I think they've probably reached it.”
Check out Bisnow early next week when Data Centers Reporter Dan Rabb takes a closer look at crypto mining. The industry has been maligned by some politicians, but industry leaders say they can be part of the state's energy solution.
