Texas puts the brakes on data centers it previously sought after.

      For years, Texas promoted itself as the most convenient place in the United States to establish a data center. However, this week it initiated measures to complicate that process. Governor Greg Abbott, who proclaimed the state as the “epicenter of AI development” last year, has put a halt on new connections for data centers to the power grid. Each project in line must now undergo an audit before proceeding.

      The reason behind this decision is significant. ERCOT, which manages the majority of the Texas grid, has amassed around 474 gigawatts of connection requests—over five times the state's highest recorded peak demand. Approximately 90% of those requests originate from data centers. In a directive aimed at regulators, Abbott expressed concerns that this load growth “could endanger the reliability and stability of the Texas electric grid.”

      Details of the audit requirements

      The audit requires information that had previously been unaccounted for. Every project is mandated to reveal details regarding any tax incentives utilized, their anticipated reliance on the grid, water usage and cooling methods, strategies to minimize noise and traffic, and the ownership of the project. Any project that does not pass the audit “must be denied,” according to the directive.

      Abbott associated this decision with the failure of data centers to respond to a previous inquiry about water and power usage. Out of the 377 companies contacted by the utility commission, only 28 provided feedback, as reported by The Texas Tribune. Texas ranks as the second-largest data center market in the nation, following Virginia, hosting hundreds of operational facilities and more in the planning stages. Following the governor's directive, ERCOT has paused its review of the initial projects awaiting approval.

      Limitations of the moratorium

      The order is not as restrictive as an outright ban. It applies to projects seeking connections to the ERCOT grid, meaning that a data center generating its own power on-site can avoid both the audit and the queue. Some areas of the state, such as El Paso, are not part of ERCOT. Typically, on-site power generation relies on gas, which introduces its own issues of noise and pollution.

      The political implications are pronounced. Abbott, a Republican up for re-election, faces criticism for not going far enough. Texas Agriculture Commissioner Sid Miller labeled the decision as “all hat and no cattle,” pushing for a special session. His Democratic opponent, Gina Hinojosa, referred to it as “another strongly worded letter” that is not credible. The Data Center Coalition, an industry organization, expressed cautious support for the measures.

      A national shift against expansion

      Texas is not the only state reconsidering data center construction. New York has already become the first state to suspend large-scale data center projects, with local opposition growing across the country. This move goes beyond the voluntary federal commitment that critics deemed ineffective.

      The financial implications for Texas are also significant. The state’s data center tax breaks currently exceed $1 billion annually, with an expected loss of $3.2 billion in sales tax revenue over two years, according to Ars Technica. The duration of the audit and its impact on construction timelines remain uncertain.