Speaker 1: This is Kamala Shelling, and you're listening to Switched on
Speaker 1: the Bloombergenif podcast. Watching data center build out in the
Speaker 1: US has been a bit like watching a train gather
Speaker 1: speed as it heads down a mountain. No matter how
Speaker 1: fast do you think it's going a few minutes later,
Speaker 1: it'll be going even faster. Let's consider a couple numbers.
Speaker 1: BNF currently forecasts the data centers could require one hundred
Speaker 1: ninety four gigawatts of power come twenty thirty five. That
Speaker 1: would be equivalent to a fifth of all electricity consumed
Speaker 1: in the US that year. On its own, that statistic
Speaker 1: would be eyewatering. But what's even more impressive is that
Speaker 1: the one hundred ninety four gigawatt figure is eighty three
Speaker 1: percent higher than the twenty thirty five forecast BNF published
Speaker 1: just a few months before. For a while, it seemed
Speaker 1: like data center momentum was unstoppable. Then seemingly overnight, things change.
Speaker 1: In the last month, governors in Texas, New York, and
Speaker 1: Pennsylvania have hit the brakes on data center build and
Speaker 1: the ramifications could be huge. These states account for around
Speaker 1: a quarter of the country's data center pipeline and the
Speaker 1: del could take a hefty bite out of developer pocketbooks.
Speaker 1: Derek fleikel BNF Senior Associate in North American Policy, has
Speaker 1: been tracking these developments, and he joins me in the
Speaker 1: studio today to talk about two of his recent stories,
Speaker 1: Pennsylvania's data center pushback raises pipeline risk and Texas data
Speaker 1: center pause could cost projects billions. BNF clients can find
Speaker 1: these and other relevant research by heading to BNF Data
Speaker 1: Centers go on the Bloomberg terminal, or at BNF dot com.
Speaker 1: If you'd like to learn more about how BNF connects
Speaker 1: the dots of the energy transition, visit us at about
Speaker 1: dot BNF dot com. And if you'd like to speak
Speaker 1: with a member of our team about becoming a client,
Speaker 1: email us at sales dot BNF at Bloomberg dot net.
Speaker 1: But for now, let's talk data centers with Derek. Derek,
Speaker 1: welcome back to switched On.
Speaker 2: Thanks for having me back. I'll be here.
Speaker 1: So, Derek, I started this podcast by talking about data
Speaker 1: center build as a train, and I think even just
Speaker 1: a few weeks ago, if you'd asked me, can anybody
Speaker 1: stop this? I would have said no, that train has
Speaker 1: left the station. It's picking up momentum, there's no stopping
Speaker 1: data center build and then suddenly three governors of three
Speaker 1: major states have put a pause. So can you start
Speaker 1: by just telling us what exactly is happening?
Speaker 2: Well, I do think there's a little bit of things
Speaker 2: change very slowly and then all at once happening. There's
Speaker 2: been this sort of gathering momentum of concerns about data
Speaker 2: center projects. It's coming from a lot of different places
Speaker 2: right concerned about AI in general, real or perceived impacts
Speaker 2: on water and electricity utilization, the electricity caused impacts or
Speaker 2: potentially more real to the water ones. Their modern data
Speaker 2: centers are prett efficient on that ladder score, and obviously
Speaker 2: electricity costs. Their impacts are going to be kind of
Speaker 2: mediated by the regulatory and political environment, and also just
Speaker 2: concerns about like secrecy, visual impacts, all disual, sort of
Speaker 2: not in my backyard stuff. But what's happened is that
Speaker 2: it's become extremely universal and intents. About seventy percent of
Speaker 2: Americans would oppose having data centers built near them, and
Speaker 2: so we have seen politicians begin to kind of respond
Speaker 2: to this gathering and increasingly organized intense negativity. This happened
Speaker 2: in a few places. New York was kind of an
Speaker 2: early Harbinger, where the Governor Kathy Hochl signed an executive
Speaker 2: order to do a one year moratorium on further data
Speaker 2: center development. This was basically a way of getting around
Speaker 2: a more radical and permanent moratorium pass by the legislature.
Speaker 2: But then you also had more radical moves like the
Speaker 2: governor of Texas, Craig Abbot, basically pausing all data centers
Speaker 2: and definitely for an audit, and then shortly after that
Speaker 2: the Pennsylvania Governor Josh Shapiro taking some formerly voluntary guidelines
Speaker 2: called the grid Standards and then making them a condition
Speaker 2: of any data center's getting build at all, as well
Speaker 2: as removing them from a fast track perfermitting. So what
Speaker 2: you're kind of seeing is politicians react to this political pressure.
Speaker 2: And it should be noted that this is in the
Speaker 2: middle of an election year, right, so even governors who
Speaker 2: were seen to be pretty likely to win their reelection,
Speaker 2: like Abbot in Texas Shapiro in Pennsylvania, they have some
Speaker 2: concerns that this might be a reason to drop them
Speaker 2: off the ticket, or in Shapiro's case, they're looking at
Speaker 2: a presidential run later, So everybody wants to be on
Speaker 2: the right side of this issue and sort of stand
Speaker 2: up as a populist against the big tech companies. At
Speaker 2: least that's the perception they're trying to cultivate.
Speaker 1: Seventy percent of Americans being against something in an election
Speaker 1: year is a massive statistic. And I want to come
Speaker 1: back to the political context and why all of this
Speaker 1: is happening right now, but first I want to just
Speaker 1: dive into a few numbers with you. So, for starters,
Speaker 1: are these pauses actually going to have a noticeable impact
Speaker 1: on bill Sure, so.
Speaker 2: It depends on where you're talking about. New York is
Speaker 2: technically the eleventh state in terms of data center pipeline
Speaker 2: out of fifty, but these are highly concentrated, so New
Speaker 2: York's doesn't matter that much. Texas, however, is the top
Speaker 2: state in terms of pipeline, has about twenty percent by itself,
Speaker 2: so the potential impact of that is pretty large. Let's
Speaker 2: imagine that this pause simply delays all of the data
Speaker 2: centers planned for the next three quarters until the second
Speaker 2: quarter of twenty seven. If that were the case, you
Speaker 2: have to then think about what the actual rental revenue
Speaker 2: is for a data center. If it's AI, it's about
Speaker 2: ten x what it would be for a traditional co
Speaker 2: location data center can be over a billion US dollars
Speaker 2: per kig awak per month. So in that terms, if
Speaker 2: you imagine about sixty percent of the Texas data center
Speaker 2: pipeline for the next three quarters is AI, you're looking
Speaker 2: at over eight billion dollars revenue impact.
Speaker 1: Wow. So in Texas alone, we're talking a fifth of
Speaker 1: the US data center pipeline. And you said eight billion
Speaker 1: dollars of impact.
Speaker 2: If that's merely delayed for one to three quarters, right,
Speaker 2: that's a completely separate question from.
Speaker 1: So that's not even delayed for a year, that's delayed
Speaker 1: for nine months tops right now.
Speaker 2: Obviously this is sensitive to assumption, it's about revenue and
Speaker 2: what percentage or AI, But like as a benchmark, it's
Speaker 2: pretty big just around things that I point out that
Speaker 2: Pennsylvania is, it's in the top five data center states
Speaker 2: in the US. It's the third largest one in PGM,
Speaker 2: which is the biggest data center market collectively. PGMs had
Speaker 2: a lot of impact issues with a capacity market with
Speaker 2: increasing charges based on a disjuncture between really large data
Speaker 2: center load expected and inability to build enough power infrastructure
Speaker 2: for that, so there could be some ripple effects throughout
Speaker 2: that market as a result of Pennsylvania's policy moves.
Speaker 1: So one of the really striking things to me about
Speaker 1: this list of states that we have is that Pennsylvania
Speaker 1: and New York both have democratic governors who tend toward
Speaker 1: policy slowing build making sure things are happening the way
Speaker 1: the state wants them to happen. Texas, on the other hand,
Speaker 1: is a very red state and has always had a
Speaker 1: very laissez faire approach to business to build out of
Speaker 1: infrastructure and businesses. So what exactly has happened in Texas
Speaker 1: specifically they would push Greg Abbott to demand this pause.
Speaker 2: Well, something that's very powerful in Texas is local property
Speaker 2: owners and there are sort of concerns for the character
Speaker 2: and local impacts in their community. There is a strong
Speaker 2: sort of pro development orientation, but you can see that
Speaker 2: a lot of places in Texas they're sort of concerned
Speaker 2: about the infrastructure that we need to be built. Right.
Speaker 2: You know, thirty three billion dollars in transmission, which is
Speaker 2: mostly going to West Texas, the PERMIA, and a lot
Speaker 2: of it might even be associated with oil and gas,
Speaker 2: which is traditionally more favored. That's become quite controversial. There's
Speaker 2: a lot of individual counties that have begun sort of
Speaker 2: worrying about trying to restrict data centers and then finding
Speaker 2: that in many cases unincorporated communities don't really have that ability,
Speaker 2: and so you start lobbying at the state level. There's
Speaker 2: just all these broader cultural and regulatory concerns, and we
Speaker 2: should know the texts. It's not just that it's pro development.
Speaker 2: It's one of the few states that's had a lot
Speaker 2: of load growth for a long time because of population
Speaker 2: growth industry, even when the rest of the US didn't.
Speaker 2: Your system is extremely flexible, and yet it just seems
Speaker 2: like that very reputation has attracted so much business to
Speaker 2: Texas that there's a huge amount of concern. If you
Speaker 2: look at the large load interconnection queue that URKAT the
Speaker 2: grid regulatormanges, that's like over for gigawatts now, and that's
Speaker 2: just many, many times what peak car demand has ever
Speaker 2: been in Texas. Despite the huge size that market and
Speaker 2: its flexibility, the result is people don't really believe that
Speaker 2: the system can manage it. There has to be some
Speaker 2: way of calling it out. Ironically, this actually interrupts a
Speaker 2: process that was intended to do this. Sent Bill six
Speaker 2: or SB six, passed texas last legislative session ad mid
Speaker 2: twenty twenty five, and Abbott's order came literally days before
Speaker 2: Urkatt was supposed to proceed with what's called Batch zero
Speaker 2: that was going to be a big batch study of
Speaker 2: this subset of a little bit over twour Gigawatson projects
Speaker 2: that were relatively ready to go in terms of what
Speaker 2: could be studied and what could be given grid connection rights.
Speaker 2: So basically you're in a situation where whether people didn't
Speaker 2: have confidence in that process or they wanted to be
Speaker 2: even more restrictive the regulatory procedure that was meant to
Speaker 2: handle this and might have been a positive sort of
Speaker 2: role model for other regulatory processes that was just about
Speaker 2: to pop off, and now it's being interrupted. This actually
Speaker 2: creates a pretty big risk in the Texas's legislature is
Speaker 2: going to meet again in twenty twenty seven, and if
Speaker 2: this audit process lasts long enough, it could lead to
Speaker 2: sort of regulatory landscape shifting under the feet of even
Speaker 2: these Batch zero game centers, the ones that are ready
Speaker 2: to go earlier. So you could see impacts on you
Speaker 2: anywhere from two hundred to four hundred gigawatts of interconnection requests. Now,
Speaker 2: one thing to note is these interconnections requests are not
Speaker 2: necessarily as firm as more later stage projects. If you
Speaker 2: look at the sort of pipeline that we look at,
Speaker 2: we think that there's maybe about fifty gigawatts of projects
Speaker 2: that are really proceeding meaningfully. There might be a lot
Speaker 2: of things that are either duplicative or speculative that are
Speaker 2: really clogging up that large load interconnection queue. And then
Speaker 2: we think there's an even smaller subset that are actually
Speaker 2: going to get built of the pipeline. So there's an
Speaker 2: important planning aspect of clearing out the more speculative requests
Speaker 2: that text us, along with a lot of other states
Speaker 2: or regional grids like PJAM, are trying to figure out.
Speaker 1: I love that you started this conversation with that old quote.
Speaker 1: It's a Hemingway quote that has then sort of changed
Speaker 1: context and changed being over time that things happen slowly
Speaker 1: and then all at once, Because it really strikes me
Speaker 1: this thing you said that Greg Abbott has put in
Speaker 1: this pause, but now that's actually giving a chance for
Speaker 1: the legislature to go back and say, actually, no, we're
Speaker 1: going to make a lot more change. So this really
Speaker 1: could be the tip of the iceberg that we're seeing
Speaker 1: on data center revamping and revamping of the data center
Speaker 1: pipeline in Texas. How about in Pennsylvania. What does Josh
Speaker 1: Shapiro's moratorium look like?
Speaker 2: Sure? So, I mean there's a few different things to
Speaker 2: point out. One thing is we don't know how long
Speaker 2: these pauses or audits are going to last. In many cases,
Speaker 2: this might simply be kicking the can until after the
Speaker 2: November election and then perhaps resolving it quickly there in
Speaker 2: a lame duck period when people are no longer accountable
Speaker 2: to voters, at least not immediately accountable. On the Pennsylvania side,
Speaker 2: I would also point out it's not strictly a pause. Basically,
Speaker 2: it's new rules requiring a certain amount of clean power
Speaker 2: to be sourced for data center project, rules requiring local
Speaker 2: permitting to proceed first before state permitting rules, getting rid
Speaker 2: of a fast track for data centers. All of this
Speaker 2: is basically a way of slowing it down. I guess
Speaker 2: instead of a wall, it's maybe more of a kind
Speaker 2: of series of banana peals or other sort of like
Speaker 2: slow mucky things in front of the path of data centers.
Speaker 2: Shapiro is careful to say, you know, I've supported a
Speaker 2: few real advanced projects that will bring local jobs. I
Speaker 2: think the majority of these projects are speculative, and there
Speaker 2: have been things like NDAs or other tactics that local
Speaker 2: communities don't like. So this is really an attempt at
Speaker 2: Q clearing in its own way. By making it so
Speaker 2: that the projects which can't really proceed, you know, don't
Speaker 2: have enough community benefits and buy in, don't have enough assets,
Speaker 2: there's a role I can move forward very slowly or
Speaker 2: not at all.
Speaker 1: So there's also something in the Pennsylvania Executive Order about
Speaker 1: clean power right.
Speaker 2: Yes, as mentioned, part of the grid standards is that
Speaker 2: data centers would have to source an increasing percentage of
Speaker 2: their power from quote clean firm sources. That could be
Speaker 2: anything from solar or wind ideally the storage to nuclear
Speaker 2: or you know, burning hydrogen. Basically you have to get
Speaker 2: ten percent initially and it could go up to about
Speaker 2: a little bit over a third by twenty thirty five.
Speaker 2: It's not a majority, but it's intended to make their
Speaker 2: sources cleaner. Also, one has to use relatively efficient, low
Speaker 2: emission diesel generators, sort of reducing some of the local
Speaker 2: air impacts even beyond climate.
Speaker 1: So in a way, it feels like this moment in
Speaker 1: data centers is touching on so many of the things
Speaker 1: we talk about at B andF. We're talking about clean power,
Speaker 1: solar wind, we're talking about long rid queues, we're talking
Speaker 1: about potentially using gas generation. We're even talking about customer
Speaker 1: electricity bills. But above all of that, of course, the
Speaker 1: elephant in the room is the November election and the
Speaker 1: politics of it. So as a final question, why is
Speaker 1: this November election having such a profound impact on the
Speaker 1: behavior of these governors and what can we expect going
Speaker 1: forward in terms of data centers and politics.
Speaker 2: Okay, so I mean, firstly, about thirty six of the
Speaker 2: fifty states have gerberatorial elections this year, so there's a
Speaker 2: lot of different people at risk. There's a lot of
Speaker 2: sort of policy imitation happening right now. It's also it's
Speaker 2: a midterm year that tends to me that it's more
Speaker 2: motivated and often higher information, more ideological voters who tend
Speaker 2: to show up. That means that activist types can really
Speaker 2: skew these things in unusual ways. It is also a
Speaker 2: democratic leaning year. Usually the president's party loses seats in
Speaker 2: the House in the midterms, so if you're Craig Abbott,
Speaker 2: you maybe unusually threatened. Even in a highly republican state
Speaker 2: like Texas, there have been anecdotal reports of like you know,
Speaker 2: very long running traditional or real Republicans in Texas thinking of
Speaker 2: voting for she and a Hinajosa, the Democratic challenger to Abbot,
Speaker 2: because she wants a straight and her moratory aumrors campaign
Speaker 2: on that. So I think what it is is just
Speaker 2: a very unusual year where all the stars are kind
Speaker 2: of aligning for both parties to be unusually wary about
Speaker 2: local pushback, and where political coalitions might realign a little
Speaker 2: bit around this surprisingly by PARTI is in an intense
Speaker 2: issue that both conservatives and progressives tend to find major
Speaker 2: objection to.
Speaker 1: That is incredibly fascinating. Thank you so much for coming
Speaker 1: on speaking to us today.
Speaker 2: Very glad to thanks for the opportunity to colo.
Speaker 1: Today's episode of Switched On was produced by Cam Gray
Speaker 1: with production assistance from Kamalas Shelling. Bloomberg NIF is a
Speaker 1: service provided by Bloomberg Finance LP. And its affiliates. This
Speaker 1: recording does not constitute, nor should it be construed, as
Speaker 1: investment advice, investment recommendations, or a recommendation as to an
Speaker 1: investment or other strategy. Bloomberg ANIF should not be considered
Speaker 1: as information sufficient upon which to base an investment decision.
Speaker 1: Neither Bloomberg Finance LP nor any of its affiliates makes
Speaker 1: any representation or warranty as to the accuracy or completeness
Speaker 1: of the information contained in this recording, and any liability
Speaker 1: as a result of this recording is expressly disclaimed.