Data centers are booming in Texas. What does that mean for the grid?

This article was originally published by Texas Tribune.

The rise of artificial intelligence, the digitization of the economy and everyday life’s growing computing needs have turbocharged the expansion of data centers, driving up a surge in electricity demand in Texas and across the country.

Texas’ main grid operator predicts power demand will nearly double by 2030, in part due to more requests to plug into the grid from large users like data centers, crypto mining facilities, hydrogen production plants and oil and gas companies.

On Tuesday, President Donald Trump announced Stargate, a joint venture between OpenAI, SoftBank and Oracle that will invest up to $500 billion in AI-related infrastructure.

Texas will serve as ground zero, with 10 data centers by the venture already under construction in the state, 10 more on the way and the first project based in Abilene, Oracle CEO Larry Ellison said. Each building will occupy half a million square feet.

The announcement reflected the hunger for data centers across industries and a yearslong push to increase data capacity. Ellison noted that the partnership had been in the works for years. He said the new data centers could offer services like maintaining electronic health care records and helping hospitals share medical knowledge.

“The demand for digital services continues to increase and continues to be necessary to build out our capabilities for the 21st century economy,” Dan Diorio, senior director of state policy at the Data Center Coalition, an industry trade group, said in an interview. “Texas is uniquely poised to benefit from that.”

That expansion — in addition to other large energy users and factors such as population growth and extreme weather — will stretch the grid over the next decade, raising questions about how Texas can meet the skyrocketing demand for power while ensuring affordability and reliability for everyday consumers.

Data centers in Texas

Data centers — which house servers that provide computing power and the fans and cooling units needed to keep the equipment from overheating — are energy-intensive facilities that operate 24/7.

Large data centers can require 100 MW or more each, consuming the same amount of power per year as 350,000 to 400,000 electric cars, according to the International Energy Agency. Put another way, a larger facility can use as much electricity as a medium-sized power plant, the U.S. Energy Information Administration estimates.

Texas has seen a rapid increase in data capacity thanks to the state’s relatively cheap energy prices, the ease with which facilities can connect to the grid and its overall business-friendly tax and regulatory environment.

Companies generally employ around 50 to 150 or more employees in each data center, in addition to an array of building and maintenance contractors, according to the Data Center Coalition, which estimates that each job in a data center supported six jobs elsewhere in the economy.

The state had 279 data centers as of September, according to the Texas Comptroller. The Dallas-Fort Worth area has about 141 of those.

That translated to 591 MW of power leased by data centers in Dallas and Fort Worth last year — the second most in the country — and nearly 190 MW in Austin and San Antonio, according to a CBRE report.

The Electric Reliability Council of Texas, the state’s primary grid operator, estimates that 1 MW of electricity can power roughly 200 homes.

What do more data centers mean for the grid?

In Texas, the U.S. Energy Information Administration predicted that demand from large users — including but not limited to data centers — would grow by 60% this year, making up around 10% of the total forecast demand on the state’s main grid.

Large users requiring 5,496 MW of power have been approved by ERCOT to connect to the grid, according to a September report. The EIA expects that by the end of this year, ERCOT will have approved 9,500 MW in total large-user demand — a 73% increase.

That includes data centers and other large users like crypto mining facilities, which represent the biggest share of large users looking to connect to the grid, according to ERCOT.

Several other large-load projects — which would use up to 56,458 MW a year — were awaiting ERCOT consideration as of September.

Some large users, primarily crypto mining facilities, have committed to temporarily lowering their energy usage in periods of grid strain — an agreement that earned some crypto mining companies millions of dollars while many Texans’ saw their power bills surge.

Data centers, on the other hand, generally require an uninterrupted supply of power and typically do not participate in ERCOT’s high-demand response programs, according to a recent report from the Texas Senate Business and Commerce Committee.

Nationally, data centers are expected to consume between 11% and 12% of total U.S. power demand by 2030 — up from around 3% and 4% of demand today, according to an analysis by McKinsey.

Is the grid prepared?

How to meet soaring power demand is set to drive the discussion around the grid during this year’s legislative session.

Texas lawmakers have sought to boost the state’s supply of natural gas through the Texas Energy Fund, which will offer companies up to $10 billion in low-interest loans to build gas-fueled power plants. State regulators are currently vetting loan applications, but new plants will not be operational for years.

“Data centers are going to provide a very essential product for consumers that underpins the functions of our life,” Mark Bell, president of the Association of Electric Companies of Texas, said. “As an industry, we are ready to step up to the challenges that we face with this type of large load.”

Bell added that the projected demand “provides forward signals in the market” that encourage companies to invest in new power generation.

ERCOT’s demand forecast, which reflected a sharp increase from previous years, also raised questions among lawmakers about whether large users needed more state oversight.

“I think we need to rise to the challenge of getting the needed generation onto the grid,” state Sen. Charles Schwertner, chair of the Business and Commerce Committee, told The Texas Tribune in June. “But there is eventually a prioritization that could be discussed, and obviously Texans — their families, their homes, their businesses — are the most important individuals, the most important clients for electricity.”

On social media, Lt. Gov. Dan Patrick said in June that the Legislature needed to “take a close look” at data centers and crypto mining facilities. “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,” he wrote.

Patrick said in a Thursday statement to The Texas Tribune that he supported Stargate and believed Texas should be the “world leader in AI, data center and crypto. The key is to ensure they have the power they need without a major impact to our electrical grid. The industries understand that and they are working on solutions.”

Some companies are building generation locally or on site to help lessen their impact on the grid and lock in their own power supply. Building their facilities near existing generation sites can also help alleviate grid congestion. Lawmakers this session will likely consider whether companies should be forced to do so, with the Texas Senate Business and Commerce Committee recommending that large loads be required to “offset their impact on the grid by adding on-site power systems or participating in programs to curtail electricity usage during peak demand periods.”

Judging whether data centers and other large projects might actually build in Texas after requesting ERCOT consideration remains difficult, experts testified to lawmakers last year, making ERCOT’s demand prediction less certain. Companies looking to build data centers may submit requests in multiple prospective locations.

In order to help firm up that forecast, the Texas Senate Business and Commerce Committee recommended that the state ensure regulators have enough information about how large users might operate, such as by asking companies to submit more detailed information about their proposed projects.

The Public Utility Commission approved a rule in November requiring crypto mining facilities connected to the ERCOT grid to register their power usage with regulators.

The projected growth in usage also means the grid will need more transmission lines, ERCOT CEO Pablo Vegas said in April.

“The forecasted pace of load growth could exceed the pace at which transmission capacity can be built to support it,” Vegas’ presentation said. “A new era of transmission system planning is necessary to manage the large amount of prospective load.”

Typically, the costs of building out transmission and distribution infrastructure are spread across a utility’s customers. But the major investments needed to support demand driven by large industrial users raised the question of who should foot the bill.

Lawmakers have signaled interest in limiting the costs passed onto small energy consumers “by ensuring that industries with significant electricity demands bear a fair portion of their actual costs.”

Diorio, of the Data Center Coalition, emphasized that the industry was “fully committed to paying our full cost of service.”

“We do not want residential customers subsidizing data centers,” he said. “We have a strong stake in helping Texas build out appropriately, and we’re leaning in to do that.”

Disclosure: Association of Electric Companies of Texas (AECT) has been a financial supporter of The Texas Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in the Tribune's journalism. Find a complete list of them here.