ERCOT, developers detail plans to manage data center growth amid legislative scrutiny

The Texas power grid is undergoing “generational” growth, experts said during the Electric Reliability Council of Texas’ annual summit March 31 in Round Rock. Much of that growth is due to data centers—an industry under scrutiny from state lawmakers as some Texas communities push back against proposed data center developments.

The big picture

Over 2,000 projects totaling 453,000 megawatts are currently looking to connect to the state grid, ERCOT CEO Pablo Vegas told legislators April 1. About 357,000 megawatts of those connection requests are potential data centers, ERCOT documents show.

One megawatt of electricity can serve about 250 residential customers, according to ERCOT. Demand on the grid reached a record 85,508 megawatts in August 2023, with the state agency estimating that demand could grow to about 145,000 megawatts by 2031.

“Data centers and data-driven demand are fundamentally reshaping how we think about planning, operations and infrastructure,” ERCOT Vice President Venkat Tirupati said during the March 31 summit. “The demand projections we are modeling today are not just incremental, they are generational, and Texas is right at the center of this transformation. At the same time, we are all challenged to deliver this transformation while maintaining affordability.”

For nearly two hours April 1, state senators questioned the leaders of ERCOT, the Public Utility Commission of Texas and the Texas Office of Public Utility Counsel about growing demand on the grid and the cost to everyday Texans. Officials were asked to provide agency updates during an interim legislative hearing on grid security, while future hearings are expected on data center growth, the cost of the large projects and how data centers impact water supplies.

“I just advise you again that the ratepayers, residential and small businesses, are feeling a significant burden when it comes to [electric] growth, which is primarily data centers,” said Sen. Charles Schwertner, a Georgetown Republican who chairs the Texas Senate Business and Commerce Committee.

Zooming in

Experts have noted that while Texas can expect to see “a lion’s share” of new data center developments compared to other states, they do not expect all 400-plus gigawatts of projects to come to fruition.

“You see a number like the [450] gigawatts, and it's sort of eye-watering,” Jesse Noffsinger, a partner at the consulting firm McKinsey & Company, said during a data center panel at the March 31 summit. “At the same time, I don't think anyone in the room thinks that is going to get built in the next three or four years.”

Noffsinger noted that “there's still a lot of uncertainty” about where data center projects will be located and if some will be built at all.

Bharath Ravulapati, the head of grid strategy for data center developer Crusoe, said March 31 that he expects data center projects totaling at least 50 gigawatts of power will be built in Texas by 2030. Crusoe is one of the developers of the 1.2-gigawatt Stargate data center in Abilene.

Ravulapati said Texas is attractive to developers “for many reasons: a faster interconnection process, great stakeholder processes that are working here, also permitting [processes]; it's faster to build here than anywhere in the country. So I think all of these kind of put Texas in the No. 1 position to build data centers.”

The local impact

Panelists noted March 31 that data center developers have an “increasingly high” negative reputation in communities across the state and country. Of nearly 1,400 U.S. adults polled by Quinnipiac University in late March, 65% said they would oppose an artificial intelligence data center being built in their community.

Eric Goff, who leads Goff Policy, an Austin-based energy and infrastructure firm, said developers often need to make commitments to local residents to earn their support for data centers and other large infrastructure projects.

“In speaking with some of the operators, they take it seriously—lots of proactive developers are looking for community engagement opportunities to give back to the community [and] looking at their broader needs in order to think in a community way,” Goff said during the data center panel.

In San Marcos, hundreds of local residents have protested a data center proposal due to concerns about high water usage, strain on the state grid and potential negative environmental impacts. City Council members voted against moving forward with a map change that would have allowed developers to build a data center on roughly 200 acres of land during a Feb. 17 meeting, Community Impact reported.

“We're seeing this nationally—the question is, is data center load growth good for the utility and surrounding customers? ... Is it driving up prices, is it making the grid less reliable?” Noffsinger said March 31.

Vegas, the ERCOT CEO, told reporters March 31 that communities should take the lead on discussions about individual data center projects.

“There are unique elements to how data centers will integrate into communities that have to be considered on a local level,” Vegas said during an interview with Texas media outlets. “Important conversations around land use, around resource use locally, all of those conversations are critical. I think that the local and state government engagement in those conversations is important.”

Vegas added that when “communities that are ready to support those investments,” ERCOT is prepared to help data centers connect to the grid.

Last year, state legislators passed Senate Bill 6, a law requiring data centers and other large electric consumers to supply backup power when connecting to the grid and switch to those reserves during emergencies. Proponents said this will strengthen standards for data centers and shield residential customers from the blackouts seen during 2021’s Winter Storm Uri.

“We're going to be building the tools and technology to [implement SB 6] in a systematic way this year, so that as we start to see the actual large data center growth materialize—because right now, we're really in the planning and the development stage, for the most part, and we haven't really seen a lot of it come online yet,” Vegas said March 31. “But when we start to see that, and it really starts more heavily in 2027 through the end of the decade, we'll have the tools ready to go to help manage that [growth].”

ERCOT is also working on a new system, called the batch study process, aimed at helping the grid operator evaluate all the large projects seeking to connect to the grid in one study, rather than studying each proposal on its own.

Vegas said ERCOT has historically considered large load proposals individually, as the agency received “a handful [of requests] per year.” Now, ERCOT is sorting through “hundreds of projects” annually that may join the Texas grid. Officials plan to begin reviewing projects in batches to better understand how various developments in one area will impact one another and determine if enough power transmission resources are available to serve the planned ventures.

“We're going to be looking at a full suite, the portfolio of projects across the ERCOT system at the same time, in order to understand their respective impact ... on the grid,” Vegas said.

Under the current system, ERCOT is in “this kind of doom loop of reevaluating and restudying as the system changes, as the neighbors change for any particular project,” Vegas said at the March 31 summit.

“That's really an untenable position to be in if you are a developer, where you're spending tens of millions of dollars on infrastructure,” he added. “And you’ve got transmission companies planning to build millions and millions, and sometimes billions of dollars in transmission service. You need to have certainty in that process.”

The ERCOT CEO told state senators that agency officials plan to bring a batch process proposal to ERCOT’s board of directors in June. If the board signs off on the plan, it will be considered by the PUC, which regulates ERCOT, in July with the goal of conducting the first batch study by the end of the summer, Vegas said April 1.

He said the batch study process would help ERCOT approve projects based on available transmission capacity in each region of Texas and identify where more power transmission needs to be built.

“[This will] ensure that the monies that are going to be spent on the infrastructure, and the transmission system in particular, are going to be prudently invested—dollars that are going to serve real projects for local communities,” Vegas said March 31.