The Scoop
Texas state politics could delay the final investment decision on one of the US’ largest new data center projects.
Project Kilby, a joint venture between Chevron and the newly formed energy project developer Joulent, is set to use nearly 3 gigawatts of “behind-the-meter” gas turbines — that is, unconnected to the state grid — to power a massive Microsoft data center in West Texas. Preliminary earthmoving work is already underway at the site while the developers finalize construction contracts and await final state permits.
But the final investment decision, originally expected by the end of this year, could be pushed to 2027 following a moratorium on new data center permits imposed last month by Gov. Greg Abbott, according to Daniel Droog, Chevron’s vice president for power solutions. In general across the AI infrastructure industry, which has been growing rapidly in Texas, “the permitting and regulatory side has caused some slowdown or potential delay in the system,” Droog said in an interview. Still, Kilby is on track to produce its first electrons by 2028, he said. Joulent also has some new management: Two former executives from the LNG exporter Cheniere were tapped by the firm for C-level leadership roles, Semafor can exclusively report.
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Project Kilby has a number of advantages over other nascent hyperscaler data center projects that should give it staying power through the current political backlash. For one, the project will generate all its own power, and therefore not raise electricity costs for other consumers on the local grid. Joulent was formed from the investment firm Engine No. 1, which bought up a number of gas turbines several years ago before the supply chain crunch really kicked in, meaning the project is already equipped with its most essential hardware. It sits on top of the Permian oil and gas basin, where gas has been so abundant that it’s practically treated as a waste product; part of Chevron’s motivation for pursuing the project is to create a new anchor customer for its own gas. And it’s located in a rural area where NIMBYs and land use conflicts aren’t much of a concern. “For getting that equation right, the Permian is very advantageous,” Droog said.
Michael Wortley, Joulent’s new CFO, said that the finalization of the project’s construction contracts is “a couple weeks, if not days, away.” As for state permits, he said he was confident that the project ticks off the various prerequisites Abbott has outlined: “If you’re part of the solution rather than the problem, ultimately you’ll get your permits.”
Tim’s view
The most draconian restrictions on data center development, including the moratoria imposed by New York and Texas, are likely a temporary phenomenon that will ease once the November elections have passed and more basic ground rules take shape. Still, the direction of travel for this industry is from a Wild West of essentially unbridled development to a more regulated status quo. That means investors will need to practice patience, despite the market signals screaming at them to build AI infrastructure as quickly as possible.
I don’t see any signs that Project Kilby is fundamentally in jeopardy: A 20-year offtake deal with Microsoft is about as bankable as a power project can get. But as is often the case in the US, politics remain a bigger roadblock than capital, hardware, or workforce. If even a project with as much momentum behind it as Kilby sees a possible slowdown ahead, other data center developers should temper their expectations for pacing accordingly.
Notable
- Federal legislation to shield consumers from higher power costs related to data centers was blocked by Senate Democrats on Wednesday, who said the legislation was “toothless” and did not address energy affordability concerns.