Data center developers in Texas could increasingly rely on on-site power generation as the state scrutinizes the industry's growing demands on electricity and water, TPH Energy Research analyst Jeff Leblanc said in a Tuesday note.
Gov. Greg Abbott has directed the Texas Commission on Environmental Quality to suspend environmental permit approvals for data centers until the Electric Reliability Council of Texas completes an audit of their electricity use. The move follows residents' concerns about data centers' impact on water supplies and potentially higher electricity costs.
The heightened scrutiny could encourage "behind-the-meter" power systems, which allow data centers to generate electricity on-site, reducing reliance on the grid and avoiding some transmission and distribution costs. Major technology companies have increasingly sought dedicated power supplies as data centers' electricity demand grows.
Water use is also a consideration. Combined-cycle gas turbines generally require more water than simple-cycle turbines, while reciprocating engines typically require less. Projects in the Permian Basin could address some of the state's concerns by using treated produced water and taking advantage of the region's abundant natural gas resources and competitive electricity costs, Leblanc said.
Some reports indicate the Texas permitting pause could last until December. Still, developers continue commercial negotiations for projects across multiple states.