Data Center Demand Growth in ERCOT Continues To Surge

The proliferation of digital technologies has thrust data centers into the spotlight as linchpins of modern business infrastructure. From cloud computing to artificial intelligence (AI), these facilities support critical operations across industries. The growing interest in generative artificial intelligence (AI) has triggered a race to develop technology, driving demand for high-density data centers and significantly increasing predicted electricity consumption.

On July 23, 2025, The White House released “Winning the Race: America’s AI Action Plan,” encompassing more than ninety federal policy actions and outlining the administration’s comprehensive and aggressive approach to securing US “dominance in artificial intelligence.” The plan sets forth a multiphase strategy to stabilize, refine, and expand the US electric grid, prioritizing reliable, dispatchable power sources and advanced grid management technologies. This coincides with the President’s executive order directing federal agencies to streamline and speed up the permitting process for data center projects to support national goals of digital infrastructure, AI advancement, and energy efficiency.

Companies developing data centers or related energy or manufacturing facilities, as well as utilities and AI infrastructure providers, could benefit from expedited permitting, reduced regulatory requirements, and federal financial support. However, implementing the plan will require changes to certain existing regulations and the regulatory amendment process can be lengthy and may become the subject of prolonged public comment periods, petitions for review of final agency actions, and other litigation. Industry stakeholders may wish to engage with regulators on the changes to the relevant regulations with an aim to facilitate clearer, predictable, and advantageous regulatory requirements.

Overall Growth in Demand

Texas is still an attractive market for large load customers due to its streamlined development and interconnection processes, friendly regulatory and tax environment, historically reliable and affordable power, and competitive wholesale electricity market. Texas is currently home to 342 data centers which together constantly require 7.6GW of power. Reflecting this trend, ERCOT projects that statewide power demand could double by 2030, driven by increased interconnection requests from large-load customers, including data centers and Permian Basin operators electrifying their operations.

ERCOT’s forecast considers the likelihood of speculative requests. The adjusted forecast had a peak demand projection of 145GW by 2031, reflecting similar growth to last year's forecast but still significantly higher than current levels. The largest percentage of projected demand growth comes from the state's data center sector, which is expected to rise to 78GW by 2031.

Impact on the Grid

ERCOT has stated that as of August 6, 2025, it had received requests equal to 572GW for three thousand new connections to the grid from large power users, including data centers. Interconnection requests are Solar (50%), Battery Storage (34%), Wind (11%), and Natural Gas (5%).

Even though it is only 5% of all interconnection requests, there has been a 148% increase in gas capacity entering the queue in the last 14 months. We believe this is because Texas lawmakers have sought to boost the state’s supply of natural gas through the Texas Energy Fund, which will offer companies up to $10 billion in low-interest loans to build gas-fueled power plants. State regulators are currently vetting loan applications, but new plants will not be operational for years.

Most of the new generation capacity is expected to come from the build-out of solar and battery storage systems (BESS), with solar expected to more than double between 2024 and 2029 and BESS projected to triple during the same period.  To meet the growing demand, ERCOT has added 8.8GW of renewable energy to the grid. Over the last three months, ERCOT has moved 4.9GW to commercial operations, but not yet operational, and 3.9GW has been synchronized with the grid and is operational.

 Data Center Demand Growth in ERCOT Continues To Surge

Judging whether data centers and other large projects might be built in Texas after requesting ERCOT consideration remains difficult. Companies looking to build data centers may submit requests in multiple prospective locations. Under SB 6, large customers that intend to join the ERCOT grid will be required to pay their local utility company a $100,000 fee before the planning process begins, and a requirement that such customers disclose to utilities any potentially duplicative interconnection requests elsewhere in Texas. Both provisions could mitigate the “phantom loads” gumming up utility and grid operator forecasts in Texas and elsewhere.

Demand Management

To prevent a systemwide blackout in an emergency, ERCOT uses a process called “load-shedding,” which involves directing transmission companies to temporarily disconnect customers. S.B. 6 authorizes the Public Utility Commission of Texas to develop two demand management programs — one mandatory and one voluntary — to ensure Texas data centers and other non-critical large loads help rather than hinder reliability.

The mandatory demand management program applies to loads of 75 MW or greater that interconnect to ERCOT from January onwards. It allows utilities to disconnect eligible loads during firm load shed events and mandates the installation of shutoff equipment known as a “kill switch” as a condition of grid interconnection.

The voluntary program is a competitively obtained reliability service active during specific times of the year, subject to a minimum 24-hour notice period and off-limits to any large-load customer that curtails in response to the wholesale price of electricity. The advance warning period is key for this sort of voluntary program, especially one counting on participation from hyperscale data centers with sensitive IT equipment worth billions
Data centers engaged in AI computations may see little economic incentive to reduce demand based solely on price signals, making their participation less about cost savings and more a strategic decision influenced by broader corporate sustainability goals. Hyperscale data centers have announced plans to use other forms of clean energy such as nuclear power to support their ongoing energy needs.

Private Partnership Solutions

Concerns over grid connection have led to several data center operators in the state seeking power off-grid through behind-the-meter agreements with power producers. Most of these agreements have been with natural gas companies, who have mobilized to take advantage of the increased demand for power.

Recent examples are:

Energy Capital Partners & KKR announced a new 190-megawatt (MW) agreement with Dallas-based CyrusOne to serve a new data center next to Calpine’s Thad Hill Energy Center in Bosque County, Texas. The Thad Hill Energy Center is a natural gas-fired combined cycle plant with a nameplate capacity of 250 MW, located in Bosque, Texas. The deal secures power, grid connection and land to support a new facility that is currently under construction and expected to be operational by the fourth quarter of 2026

Sailfish Digital Ventures (SDV) announced the launch of Comanche Circle, a data center project spanning 2,600 acres just outside the Dallas-Fort Worth metropolitan area. This development proposes hosting nine data center campuses, with a combined capacity that could reach up to 5 GW of power. Located in Tolar, Texas, Comanche Circle benefits from a strategic location. It is situated less than a mile from the Comanche Peak nuclear plant, with immediate access to 345 kV transmission lines, easing connection to the ERCOT and Oncor Electric Delivery grid.

CloudBurst, a new US data center developer focused on artificial intelligence (AI), is planning a natural gas-powered facility in San Marcos, Texas. The company has signed a ten-year supply agreement with midstream gas company Energy Transfer to provide its debut Texas data center with behind-the-meter power. Under the agreement, Energy Transfer will supply CloudBurst’s data center in San Marcos with up to 450,000 metric million British thermal units (MMBtu) of firm natural gas per day.

Meta announced a deal to purchase 100% of the power generated by a Texas solar plant owned by energy developer Enbridge to support its data center operations in the state. The power purchase agreement accompanied a decision by Enbridge to invest $900 million to finish the 600 megawatt utility-scale Clear Fork solar plant near San Antonio. The Clear Fork solar plant is currently in construction and expected to be completed and “enter in service” in the summer of 2027.

Soluna Holdings, Inc. a developer of green data centers for intensive computing applications, including Bitcoin mining and AI, announced that it has signed a term sheet for power for Project Hedy, a new 120 MW data center co-located with a 200 MW wind farm in South Texas. The wind farm is owned by a new unnamed power partner–a multinational conglomerate that focuses on developing and managing sustainable infrastructure solutions, with a strong emphasis on renewable energy, water management, and services, aiming to contribute to a low-carbon economy and a better planet.

Opportunities for REPs

Data centers are projected to account for a substantial part of new electricity demand. This growth presents both opportunities and challenges for retail energy providers, including the need to manage increased demand, invest in infrastructure, and adapt pricing strategies. Uncertainty surrounding the timing and location of data center development further complicates planning for retail energy providers.

Overall, retail energy providers are actively adapting through infrastructure investments, renewable energy initiatives, demand management strategies, and innovative pricing models to meet the unique demands of the growing data center sector. This multifaceted approach aims to ensure stability in energy supply while supporting sustainability goals.

Data Centers And Power Infrastructure In The US

According to a recent McKinsey analysis, as more data centers are built and the amount of power they require grows, power supply is becoming an issue in markets that have traditionally attracted clusters of data centers, such as Northern Virginia and Santa Clara, CA. Utilities find they have not been able to build out transmission infrastructure quickly enough, and there is concern that they may be unable to generate sufficient power.

Data centers dedicated to training AI models are being built in more remote locations in the United States, such as Indiana, Iowa, Louisiana, and Wyoming, where power is still abundant and grids are less strained. But given the lack of adequate power transmission infrastructure in these locations, power supply may still become an issue as demand grows.