States Put Data Centers on Pause: Analyst Reaction | Switched On

0:00 This is Kamala Shelling and you're listening to Switched On, the Bloomberg NEF podcast. Watching data center build out in the US has been a bit like watching a train gather speed as it heads down a mountain. No matter how fast you think it's going, a few minutes later, it'll be going even faster. Let's consider a couple numbers. BNF currently forecasts that data centers could require 194 gawatt of power come 2035. That would be equivalent to a fifth of all electricity consumed in the US that year. On its own, that statistic would be eye watering. But what's even more impressive is that the 194 gawatt figure is 83% higher than the 2035 forecast BF published just a few months before. For a while, it seemed like data center momentum was unstoppable. Then, seemingly overnight, things changed. In the last month, governors in Texas, New York, and Pennsylvania have hit the brakes on data center build. And the ramifications could be huge. These states account for around a quarter of the country's data center pipeline, and the delays could take a hefty bite out of developer pocketbooks. Derek Fleckl, BNF's senior associate in North American policy, has been tracking these developments, and he joins me in the studio today to talk about two of his recent stories. Pennsylvania's data center pushback raises pipeline risk and Texas data center pause could cost projects billions. BNF clients can find these and other relevant research by heading to bnf data centers go on the Bloomberg terminal or at bnf.com.

1:27 If you'd like to learn more about how BNF connects the dots of the energy transition, visit us at about.bnf.com. And if you'd like to speak with a member of our team about becoming a client, email us at sales.bnf bloomberg.net. But for now, let's talk data centers with Derek. Derek, welcome back to Switched On. >> Thanks for having me back. Good to be here. >> So, Derek, I started this podcast by talking about data center build as a train. And I think even just a few weeks ago, if you'd asked me, can anybody stop this? I would have said, no, that train has left the station. It's picking up momentum. There's no stopping data center build. And then suddenly, three governors of three major states have put a pause. So can you start by just telling us what exactly is happening?

2:19 >> Well, I do think there's a little bit of things change very slowly and then all at once happening. There's been this sort of gathering momentum of concerns about data center projects. It's coming from a lot of different places, right? Concerned about AI in general, real or perceived impacts on water and electricity utilization. The electricity caused impacts or potentially more real than the water ones. Their modern data centers are pretty efficient on that ladder score. And obviously electricity costs, their impacts are going to be kind of mediated by the regulatory and political environment.

2:49 And also just concerns about like secrecy, visual impacts, all the usual sort of not in my backyard stuff. But what's happened is that it's become extremely universal and intense. About 70% of Americans would oppose having data centers built near them. And so we have seen politicians begin to kind of respond to this gathering and increasingly organized intense negativity. This happened in a few places. New York was kind of an early harbinger where the governor Kathy Hokll signed an executive order to do a one-year moratorium on further data center development. this was basically a way of getting around a more radical and permanent moratorium passed by the legislature. But then you also had more radical moves like the governor of Texas, Greg Abbott, basically pausing all data centers indefinitely for an audit. And then shortly after that, the Pennsylvania governor, Josh Shapiro, taking some formerly voluntary guidelines called the grid standards and then making them a condition of any data centers getting built at all as well as removing them from a fast track for permitting. So what you're kind of seeing is politicians react to this political pressure. And it should be noted that this is in the middle of an election year, right? So even governors who are seen to be pretty likely to win their re-election like Abbott in Texas or Shapiro in Pennsylvania, they have some concerns that this might be a reason to drop them off the ticket. Or in Shapiro's case, they're looking at a presidential run later. So everybody wants to be on the right side of this issue and sort of stand up as a populist against the the big tech companies.

4:14 At least that's the perception they're trying to cultivate. >> 70% of Americans being against something in an election year is a massive statistic. And I want to come back to the political context and why all of this is happening right now. But first I want to just dive into a few numbers with you. So for starters, are these pauses actually going to have a noticeable impact on bill? >> Sure. So it depends on where you're talking about. New York is technically the 11th state in terms of data center pipeline out of 50. But these are highly concentrated. So New York's doesn't matter that much. Texas however is the top state in terms of pipeline. Has about 20% by itself. So the potential impact of that is pretty large. Let's imagine that this pause simply delays all of the data centers planned for the next 3 quarters until the second quarter of 2027. If that were the case, you have to then think about what the actual rental revenue is for a data center. If it's AI, it's about 10x what it would be for a, you know, traditional collocation data center. Can be over a billion US dollars per gigawatt per month. So in that terms, if you imagine about 60% of the Texas data center pipeline for the next three quarters is AI, you're looking at over $8 billion revenue impact.

5:26 >> Wow. So in Texas alone, we're talking a fifth of the US data center pipeline. And you said 8 billion of impact. >> If that's merely delayed for 1 to three quarters, right? That's a completely separate question from >> So that's not even delayed for a year. That's delayed for 9 months tops. >> Right? Now, obviously, this is sensitive to assumptions about, you know, revenue and what percentage are AI, but like as a benchmark, it's pretty big. Just to round things out, I point out that Pennsylvania is it's in the top five data center states in the US. It's the third largest one in PJM, which is the biggest data center market collectively.

5:59 And PJM's had a lot of impact like issues with the capacity market with increasing charges based on a disjuncture between really large data center load expected and an inability to build enough power for and infrastructure for that. So there could be some ripple effects throughout that market as a result of Pennsylvania as policy moves. >> So one of the really striking things to me about this list of states that we have is that Pennsylvania and New York both have Democratic governors who tend toward policy slowing build making sure things are happening the way the state wants them to happen. Texas on the other hand is a very red state and has always had a very lacifair approach to business to build out of infrastructure and businesses. So what exactly has happened in Texas specifically that would push Greg Abbott to demand this pause?

6:45 >> Well, something that's very powerful in Texas is local property owners and there are sort of concerns for the character and local impacts in their community. There there is a strong like sort of prodevelopment orientation, but you can see that a lot of places in Texas, they're sort of concerned about the infrastructure that would need to be built, right? you know, $33 billion in transmission, which is mostly going to West Texas, the permit, and a lot of it might even be associated with oil and gas, which is traditionally more favored. That's become quite controversial. There's a lot of individual counties that have begun sort of worrying about trying to restrict data centers and then finding that in many cases unincorporated communities don't really have that ability. And so, you start lobbying at the state level.

7:27 There's just all these broader cultural and regulatory concerns. And we should note that Texas, it's not just that it's prodevelopment. It's one of the few states that's had a lot of load growth for a long time because of population growth and industry even when the rest of the US didn't. Their system is extremely flexible. And yet it just seems like that very reputation has attracted so much business to Texas that there's a huge amount of concern. If you look at the large load interconnection queue that the that the grid regulator manages, that's like over 400 gawatt now. And that's just many, many times what peak car demand has ever been in Texas, despite the huge size of that market and its flexibility. The result is people just don't really believe that the system can manage and there has to be some way of calling it out.

8:07 Ironically, this actually interrupts a process that was intended to do this. The Senate Bill 6 or SP6 passed Texas's last legislative session at mid 2025 and Abbott's order came literally days before Urkott was supposed to proceed with what's called batch zero. that was going to be a big batch study of this subset of a little bit over 200 gawatt in projects that were relatively ready to go in terms of like what could be studied and what could be given grid connection rights. So basically you're in a situation where whether people didn't have confidence in that process or they wanted to be even more restrictive. The regulatory procedure that was meant to handle this and might have been a positive sort of role model for other regulatory processes that was just about to pop off and now it's being interrupted. This actually creates a pretty big risk in the Texas legislature is going to meet again in 2027. And if this audit process lasts long enough, it could lead to sort of regulatory landscape shifting under the feet of even these batch zero data centers, the ones that are ready to go earlier. So you could see impacts on, you know, anywhere from 200 to 400 gawatt of interconnection requests. Now, one thing to note is these interconnection requests are not necessarily as firm as, you know, more later stage projects. If you look at the sort of pipeline that we look at, we think that there's maybe about 50 gigawatts of projects that are really proceeding meaningfully. There might be a lot of things that are either duplicative or speculative that are really clogging up that large load interconnection queue. And then we think there's an even smaller subset that are actually going to get built of the pipeline. So there's an important planning aspect of clearing out the more speculative requests that Texas along with a lot of other states or regional grids like PJM are trying to figure out.

9:40 I love that you started this conversation with that old quote, the it's a Hemingway quote that has then sort of changed context and changed meaning over time that things happen slowly and then all at once because it really strikes me this thing you said that Greg Abbott has put in this pause but now that's actually giving a chance for the legislature to go back and say actually no we're going to make a lot more changes. So this really could be the tip of the iceberg that we're seeing on data center revamping and a revamping of the data center pipeline in Texas. How about in Pennsylvania? What does Josh Shapiro's moratorium look like?

10:13 >> Sure. So, I mean, there's a few different things to point out. One thing is we don't know how long these pauses or audits are going to last. In many cases, this might simply be kicking the can until after the November election and then perhaps resolving it quickly there in a lame duck period when people are no longer accountable to voters, at least not immediately accountable. On the Pennsylvania side, I would also point out it's not strictly a pause.

10:33 Basically, it's new rules requiring, you know, a certain amount of clean power to be sourced for a data center project. Rules requiring local permitting to proceed first before state permitting. Rules getting rid of a fast track for data centers. All of this is basically a way of slowing it down. I guess instead of a wall, it's maybe more of a kind of series of banana peels or other sort of like slow mucky things in front of the path of data centers. And Shapiro is careful to say, you know, I've supported a few real advanced projects that will bring local jobs. I think the majority of these projects are speculative and there have been things like NDAs or other tactics that local communities don't like. So this is really an attempt at Q clearing in its own way by making it so that the projects which can't really proceed, you know, don't have enough community benefits and buy in, don't have enough assets, those will either move forward very slowly or not at all. So there's also something in the Pennsylvania executive order about clean power, right?

11:30 >> yes. As mentioned, part of the grid standards is that data centers would have to source an increasing percentage of their power from quote clean firm sources. So that could be anything from solar or wind, ideally the storage to nuclear or you know burning hydrogen. Basically you have to get 10% initially and it could go up to about a little bit over a third by 2035. It's not a majority, but it's intended to make their sources cleaner. Also, one has to use relatively efficient low emission diesel generators, sort of reducing some of the local air impacts even beyond climate.

12:02 >> So, in a way, it feels like this moment in data centers is touching on so many of the things we talk about at BNF. We're talking about clean power, solar, wind, we're talking about long grid cues. We're talking about potential using gas generation. We're even talking about customer electricity bills. But above all of that, of course, the elephant in the room is the November election and the politics of it. So, as a final question, why is this November election having such a profound impact on the behavior of these governors and what can we expect going forward in terms of data centers and politics?

12:35 >> Okay, so I mean firstly about 36 of the 50 states have ginatorial elections this year. So, there's a lot of different people at risk. There's a lot of sort of policy imitation happening right now. It's also it's a midterm year. That tends to mean that it's more motivated and often higher information, more ideological voters who tend to show up. That means that activist types can really skew these things in unusual ways. It is also a Democraticleaning year. usually the president's party loses seats in the house in the midterms. So if you're Greg Abbott, you are maybe unusually threatened even in a highly Republican state like Texas.

13:14 There have been anecdotal reports of like you know very longunning traditional rural Republicans in Texas thinking of voting for Gina Hinahosa the Democratic challenger to Abbott because she wants a straight day center mortorium or has campaigned on that. So I think what it is is it's just a very unusual year where all the stars are kind of aligning for both parties to be unusually wary about local push back and where political coalitions might realign a little bit around this surprisingly bipartisan and intense issue that both conservatives and progressives tend to find major objection to.

13:47 >> That is incredibly fascinating. Thank you so much for coming on and speaking to us today. >> very glad to thanks for the opportunity to come along. Today's episode of Switched On was produced by Cam Gray with production assistance from Kamala Shelling. Bloomberg NF is a service provided by Bloomberg Finance LP and its affiliates. This recording does not constitute nor should it be construed as investment advice, investment recommendations, or a recommendation as to an investment or other strategy. Bloomberg NF should not be considered as information sufficient upon which to base an investment decision. Neither Bloomberg Finance LP nor any of its affiliates makes any representation or warranty as to the accuracy or completeness of the information contained in this recording.

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