Research|AIDC: Texas Permitting Risks Rise After Midterm Elections; 2027 Delivery Forecast Unchanged

What Happened

In the November 3 midterm elections, Democrats won control of both chambers of Congress. Texas was the biggest surprise: Talarico won the U.S. Senate seat, becoming the first Democrat to win the seat since 1988. Hinojosa defeated Abbott, who was seeking a fourth term, while several statewide offices, including lieutenant governor, attorney general and comptroller, also changed hands. Republicans are still expected to control the Texas Senate. The final composition of the Texas House and the comptroller race should be updated before publication based on the certified vote count.

Data centers were one of the central issues in the election. Hinojosa pledged to impose a moratorium on new data centers until the legislature establishes safeguards; require projects to demonstrate that they will not raise residential electricity or water bills; prohibit developers from signing NDAs with local governments; and eliminate the sales tax exemption for data centers (6.25%, for up to 20 years, with an estimated two-year fiscal cost of approximately $3.2bn). The freeze was already underway. On August 3, Abbott halted the ERCOT large-load queue (approximately 474GW of applications, around 90% of which were data centers, or more than five times Texas’ historical peak load) and ordered a project-by-project review. ERCOT subsequently delayed Batch Zero in its new interconnection process. On September 21, Abbott also directed TCEQ not to issue any data-center-related permits until the ERCOT and TWDB audits are complete, with all state agencies suspending related approvals. The ERCOT audit is expected in early December, but its completion will not automatically restart permitting.

Our View

Before the election, the market broadly expected Abbott to win re-election and was focused on when the freeze would be lifted after the audits were completed. Hinojosa’s victory could mean a longer freeze and tighter conditions for reopening the permitting process. However, she said during the campaign that she was not opposed to data centers. Her proposals focused mainly on protecting household utility bills and giving communities a say in site selection. The main impact of the election, therefore, is likely to be on how long the freeze remains in place and the conditions under which permitting resumes. Under our base case, we are temporarily maintaining our 2027 delivery forecast. Supporting that view will require a closer review of project permitting status: how much capacity has obtained key permits, how much Texas capacity remains subject to approval, and how much delay is already reflected in the original model. If the freeze lasts longer than assumed in the base case, or the probability of the downside scenario increases, expected deliveries could also be revised lower. New projects in Texas face greater exposure in 2028: most are likely to be delayed, while some demand may shift to other states.

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