ERCOT aims to weed out speculative data center projects with new rules

So many data centers are clamoring to connect to the Texas power grid that it’s hard to figure out which projects are actually serious, grid officials say.

In response, the Electric Reliability Council of Texas on Tuesday approved sweeping new requirements that data centers will have to meet in order to receive first dibs to connect to the state’s power grid.

The new rules set a much higher bar for data centers and other large electricity users to be studied by ERCOT for approval to connect to the grid. For example, project developers would have to pay an upfront deposit covering the cost of grid upgrades, among other requirements, to demonstrate their legitimacy.

“We potentially could be solving a national issue on how to do this … reliably, stably, with consideration for the economic growth considerations, with consideration for the cost implications,” ERCOT CEO Pablo Vegas said at the grid operator’s quarterly board meeting Tuesday.

Earlier this year, ERCOT forecast that electricity demand on its system could more than quadruple by 2032 because of new data centers, but cautioned that the estimate includes many projects that are unlikely to be built. On Tuesday, Vegas again said the projection is “too high of a figure based on realistic expectations.”

That’s problematic because ERCOT needs accurate estimates in order to assess how much the grid has to expand to satiate the power-hungry facilities.

Underbuilding the grid could trigger skyrocketing electricity costs and even blackouts. But overbuilding the grid would force everyday residents and businesses to pay for grid upgrades meant for data centers that never materialize. 

On Tuesday, Vegas said the new requirements would help ERCOT define which projects are actually equipped to use the grid infrastructure that is built for them — in other words, which projects are “real.”

Those projects would be included in the first batch of projects that ERCOT studies — known as “batch zero” — for approval to connect to the grid. 

For months, the electric power sector and the data center industry have been heatedly debating what criteria a project should have to meet to be in this first batch, as these projects would get powered up first. 

Currently, a company need only fill out an information form to join ERCOT’s waitlist for projects to study.

Based on the new rules, data centers and other large electricity users that have not already been approved to come online by July would have to meet numerous criteria to be a part of ERCOT’s first batch of grid studies.

In addition to the financial deposit, project developers would have to prove they have a contracted customer, a signed lease agreement or deed for the land they’re building on, and orders for the equipment they need, among other requirements. 

“We wanted to focus on projects that were mature in that study process, and then the other filter is really around more project readiness,” Jeff Billo, ERCOT’s vice president of interconnection and grid analysis, said Tuesday.

The new rules also set out optional pathways for data centers that are willing to reduce their electricity consumption on-command or bring their own power generation to get connected to the grid sooner than they might otherwise. 

The majority of data centers will not be selected for batch zero, Billo said. Those projects will be eligible to apply to be studied for grid connection in subsequent rounds, he said.

“We want to keep the efficiencies that our market is known for, being able to develop transmission (lines) faster than any place else in the nation, being able to support economic growth at a pace that no place else in this country can support,” Vegas said.