Chevron Seeks Texas Tax Break for Power Plant to Supply Data Center

The comptroller’s office recommended approval of the application in late January. This would mark the first approval under the program for a power plant built solely to supply a data center. The plant will not connect to the electric grid. It is designed to provide electricity for direct consumption by a data center, according to the application.

Such behind-the-meter gas plants have grown in popularity among data center developers facing multiyear delays for grid connections. In March, following news reports that Microsoft was exploring purchase of power from the project, Chevron entered into an exclusivity agreement with Microsoft and Engine 1, an investment fund involved in the project.

Chevron spokesperson Paula Beasley told WIRED there is currently no definitive agreement with Microsoft for this power plant. Microsoft corporate vice president and general counsel for infrastructure Rima Alaily said in a statement that the companies remain in discussions but no commercial terms have been finalized.

The law offers incentives for large infrastructure projects that bring jobs and revenue to the state. Approved projects receive a cap on taxable property value for local school district taxes, with the state covering the resulting reduction so school districts do not lose revenue.

The Pecos-Barstow-Toyah school board approved the project’s application in February. State documents show the abatement could save Chevron more than $227 million over a 10-year period depending on the final size and investment level. The application states the plant will provide over 25 permanent full-time jobs, although electricity generation facilities face no firm requirement to do so.

Data from nonprofit Global Energy Monitor shows nearly 100 gigawatts of gas-fired power in development across the United States at the start of the year solely to supply data centers. A WIRED analysis of fewer than a dozen such power plants, including the Chevron project, found they are permitted to emit more greenhouse gases than many small- to medium-size countries.

The Energy Forge plant alone could emit more than 11.5 million tons of CO2 equivalent annually. Beasley said the plant is being designed to comply with all applicable federal and state air quality standards. West Texas has emerged as a hub for both data centers and behind-the-meter gas plants due to its fossil fuel production infrastructure.

The JETI application notes the site is one of six under consideration nationwide and that without incentives other locations would be more attractive.

The application arrives as Texas lawmakers examine incentives for data centers. In March, Lieutenant Governor Dan Patrick ordered a study of the state’s sales tax exemption for data centers, which is projected to reach $3 billion by 2029. A report from Good Jobs First released in April found at least three states, including Texas, lose more than $1 billion in revenue each year from data center sales tax abatements.

Microsoft pledged in January to be a good neighbor in communities hosting its data centers and to pay a full and fair share of local property taxes. The company did not respond to questions about whether that pledge applies to power projects owned by other entities that would supply its data centers.

Greg LeRoy, executive director of Good Jobs First, said Microsoft’s statement does not explicitly address refusal of tax abatements on assessed property value. The JETI program replaced an earlier incentive effort that provided tax breaks with limited oversight.

Nathan Jensen, a government professor at the University of Texas at Austin, said the current program includes stronger guardrails although they remain relatively low for projects such as this one.