'It’s Going To Be Frustrating': Dallas Data Centers Face A Pair Of Power Problems
Dallas is being inundated with data center demand, but a pair of emerging challenges for developers could make meeting that demand significantly more difficult.
While the Dallas-Fort Worth area continues to be a global hotbed for data center development, the road to delivering new capacity in the market is becoming rockier.
Industry leaders speaking at Bisnow’s DICE Construction, Design and Development event at The Westin Galleria Dallas last month said the power transmission problems plaguing other major data center markets are now striking the Lone Star State.
At the same time, the market is staring down the prospect of far stricter emissions rules that are likely to require more expensive generators and make permitting for on-site power significantly more challenging.
These twin concerns around power have become more acute over the second half of this year, with the potential to make DFW a much harder place to build new facilities at the pace tenants expect. It is a shifting reality that DICE panelists said both developers and tenants need to be prepared for.
The DFW Metroplex has long been a primary hub for the data center industry. A host of data center providers are headquartered near Dallas, from colocation firms like DataBank and Evoque to wholesale development giants like CyrusOne, Aligned Data Centers, Prime Data Centers and Stream Data Centers.
As a market where the telecom and energy sectors have traditionally had a heavy presence, it is a natural home for an industry at the intersection of the two.
Dallas has also been a major beneficiary of the global data center boom of the past three years, with record growth pushing the region into the top three markets, ahead of digital infrastructure hubs like Silicon Valley. The market now has more than 735 megawatts of capacity, according to JLL, with more than 135 megawatts under construction and nearly 1.5 gigawatts in the pipeline.
Yet one of the factors pushing demand into North Texas may also be a preview of a significant problem for the Dallas market that is just now rearing its head.
Data center developers in Northern Virginia, by far the industry’s largest market, are facing significant power constraints. Utility Dominion Energy has struggled to connect new data center projects to electricity as quickly as expected, largely due to insufficient transmission infrastructure. This has led developers and tenants to look for alternative markets, creating a demand bump in Dallas and other hubs where power is more readily available.
But these same power problems have now arrived in Dallas, industry insiders said.
“Based on everything that's happening with Dominion … it's driving a lot more companies here, and the problem with that is it's creating a lot of congestion,” Chris Sumter, executive vice president for acquisitions at Prime Data Centers, said at the DICE event. “We have some significant issues that we’ve already started seeing. We’ve got real challenges to deal with.”
Texas utilities are starting to push back power delivery dates, according to Sumter. As in Northern Virginia, he said the problem isn’t how much power is being generated by Texas utilities but their ability to deliver that power to planned data center projects. Even if developers acquire land close to existing transmission lines, the power being requested by the data center industry is much greater than many utilities anticipated and, in many cases, can exceed the capacity of those transmission lines and other infrastructure.
Strader said lingering supply chain constraints have exacerbated the problem, slowing the pace at which utilities can make improvements to transmission lines or install substations needed for data center projects to move forward.
“There's a ton of demand — the most demand we've ever seen — and you're getting to the point of hitting bandwidth constraints with utilities and their ability to procure the supply chain necessary to actually turn that stuff on,” Strader said.
At Prime, Sumter said he has experienced firsthand how these transmission problems have become increasingly acute in recent months. The company had been working with regional utility Oncor for more than a year to obtain 2 GW of power for five different data center projects across the state. Prime expected that power to be delivered by 2025. But within the past two months, Oncor informed the company that power to some of those sites could be delayed by close to two years.
“What’s come up in the last 30 days is we have significant congestion in certain parts of the state … sites where we were expecting them to deliver in 2025 have now pushed into 2027,” Sumter said. “They are having significant issues.”
And just as acquiring power from utilities is becoming more difficult, it may also soon be harder for data center operators in the DFW area to install the diesel-fueled backup generators that all data centers have on-site.
Stricter emissions regulations are likely on the short-term horizon in North Texas, the result of Environmental Protection Agency efforts to bring air quality in DFW into compliance with federal standards. Since last year, the EPA has listed the Dallas area as a severe violator of the agency’s clean air rules. The region is listed as being in “severe nonattainment” for a number of airborne pollutants, with a real possibility of a downgrade to “extreme nonattainment.”
The status allows the EPA to mandate stricter emission standards — a process that is underway. The agency ruled in October that an air quality plan submitted by state officials was insufficient, meaning that much stricter rules likely lie ahead.
“We're in severe nonattainment, and we're going to extreme nonattainment from an air permitting standpoint, and that is going to impact generators and the ability to permit generators,” Strader said. “As that shift happens, Dallas is going to start to look a lot more like Santa Clara from an environmental regulatory standpoint.”
For the data center operators, this will likely lead to a longer, more difficult permitting process for on-site power, Strader said. It is a potential stumbling block that has derailed projects in other states. As Bisnow previously reported, a massive data center campus proposed in Maryland is facing an uncertain future after state regulators rejected the use of diesel generators due to emissions concerns.
New emissions rules would also likely require that Dallas-area operators use cleaner, more expensive diesel generators than are typically used today in Texas markets, according to Strader. This marks a significant cost increase for a typical data center campus that needs dozens of generators capable of producing hundreds of megawatts of electricity.
“It means having a lot of additional costs that we're not currently having to experience in the DFW market,” Strader said. “If you're not thinking about this, you should be, because it’s coming sooner than later.”
That urgency was echoed by Prime’s Sumter, who said the prospect of stricter environmental rules has tenants and developers pushing to get projects permitted and approved as quickly as possible, before new guidelines are put in place.
“Everybody's trying to race to get in before 2027 into 2028 so you can be grandfathered in,” he said.