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- Texas’ data center approval pause leaves deposits at risk without timeline for grid approvals
- Projects had to post $50,000 per megawatt in security to enter Batch Zero
- Draft September rule could increase nonrefundable deposit share to 80% from 20%, interviews show
NEW YORK, Aug 7 (Reuters) – After putting up tens of millions of dollars to connect to the Texas grid, data center companies in the Lone Star State now risk losing their deposits without a clear pathway to power up their server warehouses, according to interviews with more than a half-dozen data center companies and their attorneys.
Texas Governor Greg Abbott’s data center halt this week has thrown into question the future of one of the world’s fastest-growing markets for artificial intelligence infrastructure and is forcing those with data center projects to consider either pulling out of the state or proceeding with sometimes multi-billion-dollar projects into the regulatory unknown.
Abbott’s directive requires audits of the state’s proposed data centers, whose electricity demands amount to more than what is needed to power the entire U.S. South. The governor, who said the audit aimed to protect “Texans’ safety and quality of life,” did not disclose a clear timeline for completing the task. Following the governor’s announcement, the state grid operator also paused its newly established program, known as Batch Zero, for studying and ultimately deciding whether to connect data centers to the electrical system.
To be considered for Batch Zero, many data center projects were required to put up $50,000 in security for each megawatt of their grid-connected project, according to law firm Butler Snow.
The data center pause comes ahead of a state utility regulator meeting in September, which could result in increasing the portion of data center interconnection deposits that are nonrefundable. An early draft of the Public Utility Commission of Texas rule would change the nonrefundable portion of many data center deposits to 80% from the current 20%, according to interviews with data center companies and their attorneys, but those figures have not been decided.
Industry forecasts project that Texas, which has the land, power supplies and a business-friendly environment, could surpass Virginia as the world’s largest data center hub by 2030.
Given the size of many of the projects that have been announced in the state, some companies will have posted more than $100 million, most of which could become nonrefundable under next month’s potential PUC rule change, creating an incentive for data center grid applicants to pull out of projects before those changes take effect, K&L Gates said.
“The rub here is that nobody knows how long this will be delayed,” said John Crossley, a managing partner at corporate law firm K&L Gates, which advises on projects that include data centers.
Governor Abbott’s office did not respond to a request for further comment. His directive follows increasing scrutiny of data centers, which are used for cloud storage and artificial intelligence compute, and their effect on the electrical grid and environment.
Grid operator ERCOT said in June that it was tracking more than 400,000 megawatts of proposed data center capacity seeking to connect, but it’s unclear how much in total deposits was collected in connection with Batch Zero.
Multiple other transactions, including land leases, which create the foundation for major data center projects to materialize, are contingent upon project approvals through the Batch Zero process, putting those projects in jeopardy.
Data center businesses and their advocates say they are looking for more guidance from the state on how to proceed, but there has not yet been a rush to cancel projects.
“It is still uncertain if a company may be financially better off pulling their project now before the September (Public Utility Commission of Texas) rule change, but that’s not the norm,” said Cameron Poursoltan, director of energy policy in Texas for the Data Center Coalition, a trade group with about 50 members.
Reporting by Laila Kearney in New York; Editing by Liz Hampton and Aurora Ellis
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