A developer behind a massive west Texas data center power project locked up scarce turbine supply years before signing customers, giving it a head start that helped secure a deal with Chevron and Microsoft.
"Having the supply chain secured allowed us to meet an aggressive timetable," Brian Boland, chief financial officer at Joulent, the power development arm of energy investment firm Engine No. 1, said in an interview with Argus Wednesday. Early procurement of gas turbines and the high-voltage equipment needed to power a project that will begin operations without a connection to the local grid was "critical" to landing the deal, he said.
The Kilby project is a planned 2.67GW gas-fired facility in west Texas that will be located next to a Microsoft data center. Joulent is developing the power-generation plant in a partnership with Chevron, which will supply electricity directly to the data center through a subsidiary under a 20-year power purchase agreement.
More data-center developers are seeking to build their own generation and operate independent of the grid, or "behind-the-meter," because of extended wait times to get connected through the traditional interconnection process.
The rush to build gas-fired plants to meet the expected surge in data center-driven power demand growth has squeezed gas turbine supply globally, with major turbine manufacturers reporting substantial production backlogs and lead times stretching up to 7-8 years.
Anticipating such a backlog, Engine No.1 locked in roughly 4GW of gas turbines as well as high-voltage equipment like transformers and breakers in the past three years, before even partnering with Chevron to develop a power generation plant. This early procurement was "critical" to being able to meet Microsoft's 2028 time frame, said Boland.
Protecting ratepayers
While the project will begin operations fully behind the meter, Boland said it is designed to eventually connect to the grid, with the equipment required to do so already secured. Until then, the facility will rely on a combination of gas turbines, battery storage and multiple generation units to maintain reliability. The battery system will serve as a "synthetic reserve" to absorb fluctuations in data center demand and stabilize the system during sudden load changes or unit trips.
Under this arrangement, regular ratepayers are shielded from costs associated with Microsoft's power needs, said Boland, and eventually the project will be able to provide excess power to the grid. Rising power prices have become a flashpoint around the US as some markets with heavy concentrations of data centers have seen household electricity bills rise by double digits.
"We do not want to drive up costs on ratepayers," he said. "We're very focused on insulating customers from price increases because of the incremental demand."
Chevron will build out the gas infrastructure needed to supply the plant, including a roughly 20-mile lateral connection to the Waha Hub, a key pricing point for Permian Basin gas supplies. The site's proximity to the hub allows the project to tap into the region's large volumes of associated gas, which Boland said provides a cost advantage and reduces concerns about fuel availability.
Waha gas prices typically trade at a deep discount because of a long-standing shortage of pipeline capacity to take product out of the region. With Permian gas production totaling roughly just over 25 Bcf/d, it is unlikely that even surging demand from data centers and other large industrial users would meaningfully shift pricing dynamics, Boland said, adding sustained oil production is expected to keep associated gas volumes high and excess supply persistent.
Joulent is looking to replicate the model beyond the Kilby project. The company has about 25GW of projects in its development pipeline and is in discussions with additional customers. The firm is pursuing sites in the Permian as well as other regions, aiming to build out a series of multi-gigawatt facilities across multiple markets.
