Corrects to show FTI forecasts are for eastern US in eighth paragraph.
Texas is poised to lead the US in connecting new power generating capacity to its electric grid in coming years, helping meet soaring demand fromnew data centers running artificial intelligence (AI) software.
That ability to bring new generation on line quickly could attract an outsize share of new AI data centers to the Lone Star state, spiking power demand even as a reliability watchdog warns unmitigated data center build-out could destabilize Texas' islanded electric grid.
The Electric Reliability Council of Texas (ERCOT), operator of the state's electric grid, has 28GW of generating capacity under construction or in advanced development stages set to come on line by 2027, according to FactSet. At that rate, ERCOT is set to outpace the other six organized US electricity markets in power capacity additions in the coming years, a continuation of the 2021-2024 period when ERCOT led all markets in capacity additions.
Over that four-year period, ERCOT installed more solar than the sun-rich California Independent System Operator and more wind than the wind-rich Midcontinent Independent System Operator and Southwest Power Pool, FactSet senior energy analyst Trevor Fugita said.
A June report from the RAND Corporation, a US think tank, forecast 82GW of power capacity available for data centers coming on line in the contiguous US through the end of the decade, with ERCOT accounting for 84pc of the additional capacity. Available power capacity in the service territory of PJM Interconnection, the largest US grid covering 67mn electric customers across 13 states, is expected to decline over the period as planned generator retirements reduce capacity and a backlogged interconnection queue throttles additions. In order for PJM — which covers northern Virginia, also known as "data center alley" — to support new data centers, those data centers would need to purchase capacity and transmission rights from existing load interconnections or hope that retirement timelines get pushed back, Ismael Arciniegas Rueda, lead author of the RAND report, said.
President Donald Trump's administration is pushing the power sector to take the latter approach, with the US Department of Energy earlier this month warning that retiring coal- and natural gas-fired power plants as new data centers come online could cause widespread blackouts.
"The US cannot afford to continue down the unstable and dangerous path of energy subtraction previous leaders pursued, forcing the closure of baseload power sources like coal and natural gas," US energy secretary Chris Wright said.
US consultancy FTI Consulting significantly revised its projections for power capacity additions from 2025-2034 following passage of the tax and energy bill that Trump signed into law on 4 July. FTI raised its forecasts for natural gas-fired power additions in the Eastern Interconnection grid region, covering roughly the eastern half of the US, to 110GW from 57GW previously and for battery storage additions to 24GW from 9GW. FTI also lowered its projected solar capacity additions to 23GW from its reference case of 141GW, and lowered wind power additions to 4GW from 30GW.
McKinsey forecasts 47GW of incremental power generation capacity will be needed to support US data center power demand growth through 2030, with 60pc to be met by natural gas-fired power and 40pc by renewables. The build-out will drive about $50bn of capital investment in US power generation capacity through 2030, the US consultancy said.
ERCOT in April forecast 22GW of new data center demand coming on line by the end of 2030, accounting for 43pc of the load growth ERCOT expects in 2025-2030. Over the period, ERCOT expects overall demand to surge to roughly 138GW in 2030 from 87GW in 2025.
Reliability watchdog Texas Reliability Entity in June predicted the rapid integration of large loads — primarily data centers — would have a "major impact" on bulk power system reliability in the coming years.
But FTI told Argus it does not expect ERCOT's projection of 22GW of data center demand to fully materialize. That is because constraints in the supply chain for semiconductors could limit data center growth, while the recent passage of Texas Senate Bill 6 increases interconnection costs for data centers and subjects them to possible curtailments during load shedding events. In addition, many projects are applying for interconnection in multiple grid regions simultaneously, creating "phantom loads", FTI said.
How ERCOT adds power quickly
The unique process by which ERCOT connects new generation resources to its grid, known as "connect and manage", explains much of how ERCOT has been able to add so much new generation so quickly.
RAND calls other US' grids backlogged interconnection processes, in which project lead times can languish for years as developers undergo required studies to see if transmission upgrades are needed, "the single largest barrier to increasing the power capacity available for AI". US consultancy Brattle Group in a 2022 report called ERCOT's connect and manage interconnection process "perhaps the most effective in the US".
"If you want to build a [generation] project in ERCOT, you have a much firmer idea of how long it's going to take to get through the interconnection queue and certainty on what the process is," FTI Consulting senior director Dan Goodwin said.
ERCOT also boasts significantly higher project completion rates than other regions, with a capacity-weighted project completion rate of 24pc for projects that requested interconnection from 2000-2018. This was much higher than completion rates of 8pc for the California Independent System Operator, 9pc for the New York Independent System Operator and 15pc for PJM, according to the Lawrence Berkeley National Laboratory.
ERCOT can also implement market reforms more quickly because it is not subject to federal oversight, due to it being contained within a single state and isolated through a lack of interconnections with the two synchronized grids that cover the rest of the contiguous US: the Western Interconnection and the Eastern Interconnection. But that lack of interconnection with other grids also reduces reliability.
During the severe winter storm of February 2021, for example, the failure of natural gas and wind infrastructure that had not been adequately prepared for extreme winter weather caused massive power outages. There were 246 confirmed deaths in Texas from that storm, according to the Texas Department of State Health Services.
Had Texas been interconnected with Western or Eastern Interconnection, the outage "would have been much less severe," Breakthrough Institute analyst Deric Tilson said.
