Data Center Development Surging In Texas, But Big Changes Could Be On The Way

Data center development is booming in Texas, but new state legislation could change the rules of the road for how developers can acquire the power needed to build these facilities.

The ongoing surge in data center construction and subsequent spike in electricity demand has created problems for the state’s independent power grid operated by the Electric Reliability Council of Texas.

Power providers within ERCOT have been inundated by requests for grid connections and power by data centers that collectively far exceed the system’s capacity. The result has been an increased risk of grid failures, long wait times for electricity for developers, and the threat of higher power costs for residents. 

But legislation approved by the Texas Senate late last month aims to address some of these concerns.

The Senate Bill 6 legislation includes measures that would require data centers to bear the cost of grid upgrades, establish a standard system for requesting power from utilities and mandate data center participation in grid stability programs. 

The bill still needs to pass the house but has received support from Gov. Greg Abbott's administration. And despite pushback from prominent conservative pundits and the data center industry’s concerns over parts of the proposed law, many within the sector say they are in favor of changes to the ERCOT system.

“The system is broken,” Bill Thomas, chief energy officer at CleanArc Data Centers, said last week at Bisnow’s DICE: Power event in Dallas. “You're seeing a lot of hands being thrown up in the air and not a lot of ability to move projects forward right now because there’s no process and no transparency. I think Senate Bill 6 is trying to address that.”

Data center development is continuing to spread across Texas. Dallas, a longtime industry hub, remains the second-largest U.S. data center market, while the Austin-San Antonio region has grown faster than any other data center market since 2020, according to JLL. Meanwhile, the I-35 corridor and West Texas have established themselves as new development hotbeds. 

In the past week, CyrusOne and Spanish construction firm ACS announced separate plans to move forward with five-building data center campuses in Fort Worth, while developer Oppidan proposed a data center along I-35 in Temple, Texas. 

This wave of development has contributed to an unprecedented spike in electricity demand. While total demand in Texas previously peaked at around 85 gigawatts, more than 150 gigawatts of power are being requested by data centers and other large users, according to ERCOT. By comparison, the data center inventory for the entire Dallas market at year-end totaled just over 1 gigawatt, according to JLL. 

The demand surge is creating havoc for ERCOT and the power providers within its system. Fulfilling all the power requests in their “interconnection queues” would require utilities to spend billions on infrastructure projects to create new power generation and transmission lines.

But not all interconnection requests are created equal. A sizable percentage of requests are “phantom load”: speculative applications from landowners looking to boost property values or firms exploring multiple sites but only planning to build on one. 

With no established method of separating the wheat from the chaff, utilities risk building out new grid infrastructure for projects that never materialize, driving up electricity costs to pay for that spending. At the same time, developers pursuing viable projects are potentially stuck in years-long queues for electricity.

While some Texas utilities have taken steps to weed out speculative interconnection requests and prioritize viable projects, such efforts have been “ad hoc” and developed hurriedly and with little transparency and are inconsistent across the state’s balkanized power landscape, industry executives say. 

“Having some structure is all that we want — just to be able to have transparency and auditability and know what the rules are to be able to keep moving things through the queue,” Thomas said. “The worst-case scenario is where we're at right now where nothing's moving.”

Senate Bill 6, introduced by Republican Senators Phil King and Charles Schwertner, aims to address these concerns. The bill would mandate a standard statewide process for utilities to evaluate and add data centers to their interconnection queues. It would also force data center applicants to disclose whether they are requesting power in other locations for the same planned capacity. 

Additionally, the legislation would require data centers to bear the cost of infrastructure projects undertaken by utilities to serve them, reducing the risk that those costs will be passed along to other ratepayers. 

“There are responsible steps being taken to try to reduce the overall amount of speculation and enable projects that we and our customers know need to go vertical to flow through efficiently,” Skybox Datacenters CEO Rob Morris said at the DICE event.  “We're excited about that change.”

The legislation would also create new requirements for future data centers intended to limit the risks that skyrocketing electricity consumption poses to grid reliability. Data centers would be required to disconnect from the grid at the behest of utilities in certain scenarios where the grid is under strain. The bill mandates the creation of a program through which grid operators could competitively procure demand reduction from data centers and other large electricity users. 

Although such forced curtailment “kill switch” measures have prompted pushback from the data center industry, some of the most vocal opposition to the proposed Texas law has come from the right side of the political spectrum.  

Despite Senate Bill 6 being authored and backed by Republican lawmakers, a number of prominent national conservative commentators have slammed the law, saying it creates new regulation and undermines the Trump administration’s artificial intelligence and energy agenda. 

"Texas Senate Bill 6 (SB6) is a bad idea. It threatens to challenge President Trump's vision for AI dominance and the need for the US to invest in domestic data centers," conservative pundit Ian Miles Cheong wrote on X. "If you want China to win and stifle American innovation, this seems like the bill to do it."