Latest / DX Today | No-Hype Podcast & News About AI & DX / Texas Froze 474 Gigawatts of AI Data Center Demand

Transcript

Texas Froze 474 Gigawatts of AI Data Center Demand · DX Today | No-Hype Podcast & News About AI & DX

• 0:00
  SPEAKER_01: Welcome to the DX Today Podcast, your daily deep dive into the AI ecosystem.
• 0:05
  SPEAKER_01: I'm Chris, and joining me as always is Laura.
• 0:08
  SPEAKER_00: Hey Chris, and hello everyone.
• 0:10
  SPEAKER_00: Today we are going to Texas because the state that was supposed to be the easiest place on earth to plug in an AI data center has basically locked the door and started checking everyone's paperwork.
• 0:20
  SPEAKER_01: Right, and the timing matters here because brand new rules from the Texas utility regulators took effect on October 8th.
• 0:27
  SPEAKER_01: And they change what it costs just to stand in line for power.
• 0:30
  SPEAKER_01: So set the scene for us.
• 0:32
  SPEAKER_00: Okay, here's the number that started all of this.
• 0:34
  SPEAKER_00: At the end of 2024, the Texas grid operator ERCOT had about 63 gigawatts of big new customers waiting to connect.
• 0:42
  SPEAKER_00: By June of this year, that queue was 474 gigawatts.
• 0:46
  SPEAKER_01: Hold on, I want people to feel how big that is.
• 0:49
  SPEAKER_01: Because gigawatts are abstract.
• 0:51
  SPEAKER_01: How does 474 gigawatts compare to what Texas actually uses on its hottest day of the year?
• 0:56
  SPEAKER_00: The record peak demand for the entire ERCOT grid is roughly 91 gigawatts.
• 1:01
  SPEAKER_00: So the waiting list alone is more than five times the most electricity the whole state has ever used at once, and about 90% of those requests are data centers.
• 1:10
  SPEAKER_01: That sounds less like a waiting list and more like a wish list.
• 1:13
  SPEAKER_01: I have to assume a huge share of those projects are never going to be built, right?
• 1:17
  SPEAKER_01: Nobody seriously thinks Texas is adding five grids.
• 1:21
  SPEAKER_00: Exactly, and that is the heart of the story.
• 1:23
  SPEAKER_00: People in the industry call it Phantom Load or Ghost Demand.
• 1:26
  SPEAKER_00: Some developers file the same project at several sites, some have no customer signed yet, and some are just reserving a spot in line hoping to sell it later.
• 1:35
  SPEAKER_01: So walk me through what Governor Greg Abbott actually did because I keep hearing the word freeze, and I want to know exactly what got frozen and when it happened.
• 1:43
  SPEAKER_00: It came in waves.
• 1:44
  SPEAKER_00: On August 3rd, he ordered a pause on new data center connections to the grid and told the utility commission in ERCOT to audit every project in the queue.
• 1:52
  SPEAKER_00: One detail he highlighted was that only 28 of 377 companies had answered a state survey about their water and power use.
• 2:00
  SPEAKER_01: 28 out of 377 is a pretty terrible response rate.
• 2:04
  SPEAKER_01: If I were a regulator and almost nobody answered my survey, I would also start wondering who is real and who is just holding a place.
• 2:11
  SPEAKER_00: And it kept widening.
• 2:13
  SPEAKER_00: On September 14th, he brought in the state water board for a water use review.
• 2:17
  SPEAKER_00: Then on September 21st, he told the environmental agency, the TCEQ, to quote, halt all permits sought by data centers.
• 2:25
  SPEAKER_01: Now that last one is interesting because a lot of these developers had a backup plan.
• 2:29
  SPEAKER_01: If the grid will not take me, I will just build my own power plant next door.
• 2:34
  SPEAKER_01: Does the permit freeze catch those projects too?
• 2:36
  SPEAKER_00: It does, and that is what surprised the lawyers.
• 2:39
  SPEAKER_00: The September order reaches projects that are fully off the grid, running on their own gas turbines behind the meter, and it even covers power plants built by partners mainly to serve a data center.
• 2:50
  SPEAKER_00: No air permit, no wastewater permit, no shortcut.
• 2:53
  SPEAKER_01: So there is no side door at all right now.
• 2:56
  SPEAKER_01: What is the timeline?
• 2:57
  SPEAKER_01: Is this a permanent ban or is the state saying we are pausing until we finish counting?
• 3:02
  SPEAKER_00: Officially, it is a pause.
• 3:04
  SPEAKER_00: The environmental agency owes the governor a report on how it is complying by Monday, October 19th.
• 3:10
  SPEAKER_00: And ERCOT is expected to finish its review in mid-December, which is when the pause is supposed to lift.
• 3:16
  SPEAKER_01: Okay, now the rules that just kicked in on October 8th.
• 3:19
  SPEAKER_01: This is the part I find most practical because it is about money.
• 3:22
  SPEAKER_01: What does it now cost a developer to even ask for a connection?
• 3:25
  SPEAKER_00: Two big pieces.
• 3:26
  SPEAKER_00: First, a flat study fee of$100,000.
• 3:30
  SPEAKER_00: Second, and this is the real teeth, financial security equal to$50,000 per megawatt of contracted demand or the cost of the grid upgrades assigned to the project, whichever is greater.
• 3:41
  SPEAKER_01: Let me do the math out loud because I think listeners will appreciate it.
• 3:45
  SPEAKER_01: A 500 megawatt campus, which is a big but not crazy project these days, would need to put up at least$25 million just to hold its place.
• 3:54
  SPEAKER_00: That is right, at least$25 million.
• 3:57
  SPEAKER_00: And they do not get it all back the day the lights come on.
• 4:01
  SPEAKER_00: Only 20% of the remaining balance is returned at energization, and the rest is released as the customer actually hits its promised usage milestones over time.
• 4:10
  SPEAKER_01: That is clever, actually.
• 4:12
  SPEAKER_01: It is not just a fee, it is skin in the game.
• 4:15
  SPEAKER_01: If you are a ghost project with no customer, tying up$25 million for years is a very expensive way to keep a spot.
• 4:21
  SPEAKER_00: And I should be fair here, the final rule is softer than the draft from March.
• 4:25
  SPEAKER_00: The commission dropped a proposed charge that would never have been refunded, and it stretched some grace periods.
• 4:31
  SPEAKER_00: So the industry pushed back and won some changes, but the deposit stayed.
• 4:35
  SPEAKER_01: Let me push back a little on the whole premise, though.
• 4:38
  SPEAKER_01: Texas spent years bragging that it was the fastest place to build anything.
• 4:42
  SPEAKER_01: Is the state shooting itself in the foot, handing the AI boom to Ohio or Arizona or wherever is next?
• 4:48
  SPEAKER_00: That is the real tension.
• 4:49
  SPEAKER_00: Bloomberg New Energy Finance estimates the pause could delay almost 50 gigawatts of new demand, nearly 20% of the national pipeline it tracks, with as much as$15 billion of revenue at risk by early next year if most of it is AI compute.
• 5:04
  SPEAKER_01: $15 billion is not a rounding error, even in this industry.
• 5:08
  SPEAKER_01: Why is the delay so expensive?
• 5:10
  SPEAKER_01: I would have guessed a few months of waiting is annoying but survivable.
• 5:14
  SPEAKER_00: Because the chips are the expensive part, not the building.
• 5:17
  SPEAKER_00: Bloomberg puts the rental value of AI compute at around$1.76 billion per gigawatt per month.
• 5:24
  SPEAKER_00: So every month a finished campus sits dark, all of those graphics processors are depreciating and earning absolutely nothing.
• 5:31
  SPEAKER_01: And that explains why everyone keeps saying time to power.
• 5:34
  SPEAKER_01: In this business, the scarcest thing is not money, it is the date your electricity shows up.
• 5:40
  SPEAKER_01: And Texas just made that date a lot less predictable.
• 5:44
  SPEAKER_00: There is also a politics angle that I do not want to skip.
• 5:47
  SPEAKER_00: Bloomberg pointed out that Governor Abbott is up for re-election in November.
• 5:50
  SPEAKER_00: And an August University of Texas poll found 56% of Texas voters think more data centers would hurt their local energy bills.
• 5:58
  SPEAKER_01: That is a big number for a state that loves business.
• 6:01
  SPEAKER_01: So people are worried their electric bill goes up to pay for somebody else's chatbot.
• 6:06
  SPEAKER_01: Is that fear actually justified by the data, or is it just a gut feeling?
• 6:10
  SPEAKER_00: It is mixed, which is why it is such a good fight.
• 6:13
  SPEAKER_00: Berkeley Lab found that from 2019 through 2025, the states with the most load growth generally saw average electricity prices fall after inflation because fixed grid costs get spread over more customers.
• 6:26
  SPEAKER_01: Wait, so more big customers can actually lower prices for everybody else?
• 6:30
  SPEAKER_01: That runs completely against the intuition people have.
• 6:33
  SPEAKER_01: So I want to make sure I understand when that works and when it does not.
• 6:37
  SPEAKER_00: It works when the big customer pays for the new wires and plants it needs.
• 6:41
  SPEAKER_00: It fails when those upgrades get charged to every household.
• 6:44
  SPEAKER_00: That is exactly why the governor previewed future standards saying data centers must cover all their electrical infrastructure costs and actually result in lower residential bills.
• 6:54
  SPEAKER_01: Lower bills as a legal requirement is a bold promise to put in writing.
• 6:58
  SPEAKER_01: Let me ask about the grid itself, though.
• 7:01
  SPEAKER_01: Beyond money, is there a real engineering reason ERCOT cannot just say yes to everyone who pays?
• 7:06
  SPEAKER_00: Absolutely, and this part is fascinating.
• 7:09
  SPEAKER_00: Data centers protect their chips by switching to backup power the instant they sense a voltage dip.
• 7:14
  SPEAKER_00: When one huge campus does that, the grid suddenly loses a massive load in seconds, and under some conditions, ERCOT can only handle losing about 3.2 gigawatts at once.
• 7:24
  SPEAKER_01: So a few big campuses all blinking off together during a storm could actually knock the grid off balance.
• 7:29
  SPEAKER_01: That is not a paperwork problem, that is a physics problem, and it makes the audit sound a lot more reasonable.
• 7:35
  SPEAKER_00: Right.
• 7:35
  SPEAKER_00: And ERCOT already added a ride-through rule so new data centers stay connected during routine faults.
• 7:40
  SPEAKER_00: It also created something called batch zero in June, where every load of 75 megawatts or more is studied together.
• 7:47
  SPEAKER_00: And of the requests, about 204 gigawatts qualified for study and 294 did not.
• 7:53
  SPEAKER_01: And I read that 17 projects had finished every other step and are now just sitting there waiting for permission to switch on.
• 8:00
  SPEAKER_01: That has to be maddening if you are one of those 17 developers.
• 8:04
  SPEAKER_00: It is, and it is also why so many people jumped to the bring your own power idea.
• 8:08
  SPEAKER_00: Research firm semi-analysis tracks around 75 gigawatts of equipment orders for behind-the-meter generation.
• 8:15
  SPEAKER_00: One planned campus in Shackled County for Oracle and OpenAI was designed with more than 500 gas engines of about four megawatts each.
• 8:23
  SPEAKER_01: 500 engines is a fleet, not a backup generator.
• 8:27
  SPEAKER_01: But I hear running your own island grid is much harder than it sounds.
• 8:31
  SPEAKER_01: What goes wrong when a data center tries to be its own utility?
• 8:34
  SPEAKER_00: A lot.
• 8:35
  SPEAKER_00: The real grid has more than 1,460 generating units covering for each other.
• 8:40
  SPEAKER_00: An island has none of that cushion.
• 8:42
  SPEAKER_00: At the first Memphis site from XAI, power swings of 10 to 20 megawatts several times a second actually wore down turbine shafts, so they added 150 megawatts of Tesla batteries.
• 8:53
  SPEAKER_01: And winter's the scary case, right?
• 8:55
  SPEAKER_01: Texas still remembers winter storm Uri.
• 8:58
  SPEAKER_01: When gas plants failed together, what would it take to keep one of these islands running through a freezing night?
• 9:04
  SPEAKER_00: Here is a stat I love.
• 9:05
  SPEAKER_00: Keeping a one gigawatt campus running through a single 14-hour winter night takes 14 gigawatt hours of batteries, which is about half of all the battery storage on the entire ERCOT grid as of June.
• 9:16
  SPEAKER_00: For one campus, for one night.
• 9:18
  SPEAKER_01: That is wild.
• 9:20
  SPEAKER_01: So the off-grid escape hatch is real, but it is expensive and fragile.
• 9:25
  SPEAKER_01: Is there a middle path where data centers stay on the grid but behave better?
• 9:29
  SPEAKER_00: Yes, and I think this is the most hopeful part.
• 9:32
  SPEAKER_00: A Duke University study led by Tyler Norris found that, setting transmission aside, ERCOT could absorb about 10 gigawatts of new load if that load agreed to cut back for just half a percent of the year, with typical cutbacks lasting about two hours.
• 9:46
  SPEAKER_01: Half a percent is nothing.
• 9:47
  SPEAKER_01: So the deal is basically we let you in faster if you promise to dim the lights on the worst summer afternoons.
• 9:53
  SPEAKER_01: That sounds like a trade a lot of AI companies would happily take.
• 9:56
  SPEAKER_00: Many are.
• 9:57
  SPEAKER_00: Under batch zero, a campus can count its own power plant if it can cut back within one minute of a plant failure, and 11 projects already chose that path.
• 10:05
  SPEAKER_00: The other path lets ERCOT automatically trim usage above a guaranteed share when the lines are full.
• 10:11
  SPEAKER_01: Let me zoom out because Texas is not alone.
• 10:13
  SPEAKER_01: Is this a Texas story or is this the beginning of a national pattern where states start slamming the brakes on AI infrastructure?
• 10:20
  SPEAKER_00: It is clearly spreading.
• 10:21
  SPEAKER_00: New York created a statewide moratorium on new hyperscale data centers of 50 megawatts or more in July.
• 10:28
  SPEAKER_00: Illinois paused its data center incentive agreements, and Florida passed new rules defining large data centers.
• 10:34
  SPEAKER_00: Texas is just the biggest, loudest example.
• 10:38
  SPEAKER_01: And the governor also said he wants the legislature to eliminate financial incentives for data centers, which is a remarkable turn for Texas.
• 10:44
  SPEAKER_01: The legislature comes back in January, so this fight could run well into next spring.
• 10:49
  SPEAKER_00: Bloomberg thinks the pause could stretch into that session, possibly into April.
• 10:53
  SPEAKER_00: So for anyone planning AI capacity, the honest answer is that the Texas power date on your spreadsheet is now a guess, and you need a plan for what happens if it slips.
• 11:03
  SPEAKER_01: So what is the practical takeaway for the people listening, whether they are building, buying compute, or just paying an electric bill in Dallas or Houston?
• 11:13
  SPEAKER_00: For builders, flexibility is now the fastest ticket to the grid, so designed to cut back on command.
• 11:18
  SPEAKER_00: For buyers of compute, ask your provider where the power comes from and when.
• 11:23
  SPEAKER_00: And for households, watch whether the promise that data centers pay their own way actually shows up in the rules.
• 11:29
  SPEAKER_01: I think the bigger lesson is that the AI race is not only about chips and models anymore.
• 11:33
  SPEAKER_01: It is about wires, water, deposits, and voters.
• 11:37
  SPEAKER_01: And Texas just reminded everyone that the grid gets a vote too.
• 11:40
  SPEAKER_00: Perfectly said.
• 11:41
  SPEAKER_00: The October 19th report and the December audit are the two dates to watch.
• 11:45
  SPEAKER_00: And we will absolutely be back on this story when the Texas door either swings open or stays shut.
• 11:51
  SPEAKER_01: That's all for today's episode of the DX Today podcast.
• 11:54
  SPEAKER_01: Thanks for listening, and we'll see you next time.