Fossil fuels fuel the AI boom: Microsoft and Chevron partner on massive Texas energy project

A major tech company has announced that it is coming to Texas with a new partnership with an energy giant in the Lone Star State.

On Monday, Chevron announced that it is partnering with Microsoft to develop a new data center campus, known as "Project Kilby," in Texas.

The project will scale to an estimated capacity of 2.67 gigawatts of capacity over time.

The two companies signed a 20-year power purchase agreement in anticipation of the planned, "co-located" power plant and data center.

Reuters reported that the facility is set to be built in Pecos, Texas, west of Midland.

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BENOIT DOPPAGNE/BELGA MAG/AFP/Getty Images

"AI is reshaping the global economy, and abundant, affordable, reliable energy is essential to fueling that transformation," said Jeff Gustavson, Chevron president of New Energies, in a Monday press release. "Chevron is uniquely positioned to deliver power to customers with certainty, speed, and at a competitive cost, leveraging Permian natural gas and our proven execution capabilities. This project links Chevron's traditional strengths to emerging demand, creating differentiated value for our shareholders and the communities where we operate."

This agreement, the press release notes, is an important milestone leading up to the final investment decision, which is expected to be made at the end of this year. The "first power delivery is anticipated in 2028." The project will scale to an estimated capacity of 2.67 gigawatts of capacity over time.

The joint infrastructure appears to be designed, at least in theory, to avoid burdening residential neighbors with higher electricity rates, one of many oft-repeated objections to new data centers being built.

The press release claims that "Kilby is designed to deliver reliable, dispatchable electricity directly to Microsoft while aiming to mitigate impacts on the regional grid that consumers rely on," presumably by, at least in part, circumventing the main power grid in the state.

While proponents of the deal point to economic growth potential for the state and efforts to mitigate negative environmental impacts, critics say there may be some serious drawbacks to the plan.

For example, a Mother Jones article from last month noted that Microsoft may intend to take advantage of significant tax incentives that could cost the state heavily.

Greg LeRoy, the executive director of Good Jobs First, pointed out that Microsoft does not mention tax abatements in its pledge. "If they don't say, 'We will refuse tax abatements,' then they've got their fingers crossed behind their back," LeRoy told Mother Jones.

Oil & Gas Watch warned that the project may have significant environmental impacts, including a yearly output of over 13.8 million tons of greenhouse gases, a comparable annual output to that of nearly 3 million gas-powered vehicles.

This agreement comes less than two weeks after Governor Greg Abbott (R) directed the Public Utility Commission of Texas and the Electric Reliability Council of Texas to "take immediate steps to protect residential ratepayers from the costs of data center expansion."

In the letter, Abbott directed the PUC to "take action to require data centers to pay for all of their electric infrastructure costs to ensure that no residential ratepayer is burdened by those costs." Abbott added that these directives are building upon Senate Bill 6 and directed the PUC and ERCOT to submit a report by July 17 and to take action to reduce residential ratepayer transmission costs by July 31.

Project Kilby will primarily use natural gas power and plans to "use non-potable, brackish groundwater sources for power plant operations."

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