Texas puts a brake on its data centre boom

Texas has put the brakes on its rush to build data centres as its Republican leaders respond to a growing public backlash over the state’s rapid AI build-out.

Republican governor Greg Abbott has halted all new approvals of data centres pending the completion of an audit to determine their suitability for connection to the power grid, as state authorities process applications for interconnecting large projects.

Data centre developers have been plunged into chaos as they try to navigate the changing rules.

“The Texas grid had been viewed as the golden goose of this market,” said one energy development company working in the state’s data centre market. “This is definitely a bump in the road.”

The mood change has been swift. The Lone Star State used to be the Wild West when it came to data centres, with developers racing to the business-friendly state to build capacity on cheap land.

Less than a year ago, Abbott declared Texas to be “the epicentre of AI development” as Google chief executive Sundar Pichai announced a $40bn investment in the state.

Abbott’s embrace of the industry echoed that of President Donald Trump, who has been a champion of AI and warned communities that reject data centres risked becoming “backwards and poor”.

But the growing backlash among rural voters, a core Republican constituency, is pushing candidates running in the upcoming midterm elections to distance themselves from the industry.

In a sign of the acute pressure in the state, Trump hosted an unusual midterm convention in Dallas this week to energise his Maga base as polls show Democratic candidate James Talarico leading Republican Ken Paxton in a race for the Senate.

On the fringes of the convention, Dedra Taie, from the Republican Party in Collin County, north Texas, said that while she was “doing everything to keep Texas red”, data centres were an important issue for voters.

“The bottom line with data centres is people feel they don’t need to be in their area,” she said.

Elsewhere in Dallas, Paul Bustos, a 51-year-old veteran who claims to have voted for both Republicans and Democrats in the past, said he did not approve of the way the state was handling the AI build-out.

“Data centres are the new kids on the block siphoning resources from local areas and it falls on taxpayers to carry that burden,” he said.

Texas has more data centre capacity under construction than any other state in the US, with more than $100bn raised to finance new data centre build-outs since 2024, according to data from Infralogic, an infrastructure analytics platform.

In the town of Abilene, Oracle’s flagship Stargate project features a more-than-1-gigawatt data centre campus as part of its $300bn contract with OpenAI. In July, Meta closed a marquee $12bn financing to develop a similar-sized data centre in El Paso.

But the public opposition to the projects, along with mounting debt piles and an increasingly uncertain path to profitability for developers, has led investors to turn away in recent months, resulting in higher borrowing costs for new projects.

To help streamline the application process for new power-hungry developments, Texas state authorities in July introduced Batch Zero, their new verification regime for clearing demands for large power loads.

As part of the process, developers now have to make significant financial commitments, including a security deposit of $50,000 per megawatt of power at the application stage.

Developers applying for power loads of 75MW or more had expected to be assessed by the Electric Reliability Council of Texas over the coming months and allocated megawatts by April 2027. But Abbott’s audit, announced in August, has cast doubt on that timeline.

The governor’s audit had created “total chaos”, said Juliana Sersen, a partner at Baker Botts, a Texas law firm representing investors and developers operating in the state. Sersen said it was unclear how the audit would affect which projects are approved.

“I think it will, intentionally or not, act as another filter for financing parties and banks,” she said, adding that the audit could push back the approval process for projects. “There is quite a lot of uncertainty.”

The Data Center Coalition, the membership association for the industry, said there were “billions of dollars in investment and hundreds of thousands of jobs on the line”.

Jess Heck, director of Texas government affairs at the coalition, said the group was urging the Public Utility Commission of Texas and the state’s electrical grid “to move swiftly in order to distinguish between speculative projects and serious, committed investors and community partners”.

Michael Levy, chief executive of Crow Holdings, a private real estate investment and development company based in Dallas, acknowledged that the unbridled growth had led to a backlash in the state.

Levy said “companies are going to have to regroup” to respond to the audit and the growing political pressure. But he added that such delays were inevitable: “to pursue large projects and to not expect some level of delay . . . you’re naive.”

Logan Goldie-Scot, vice-president of strategy at Generate Capital, an infrastructure investment platform that is partnering with different data developers in the state, said “the rate of change here is forcing everyone to continue to refresh their approach”.

Goldie-Scot said this was encouraging data centre developers to go either “off-grid, or on to flexible grid connections backed by batteries”.

“Speed to power is so important,” he said, “having a data centre online quickly is tremendously economically valuable”.