WEBVTT - States Put Data Centers on Pause: Analyst Reaction

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<v Speaker 1>This is Kamala Shelling, and you're listening to Switched on

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<v Speaker 1>the Bloombergenif podcast. Watching data center build out in the

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<v Speaker 1>US has been a bit like watching a train gather

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<v Speaker 1>speed as it heads down a mountain. No matter how

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<v Speaker 1>fast do you think it's going a few minutes later,

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<v Speaker 1>it'll be going even faster. Let's consider a couple numbers.

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<v Speaker 1>BNF currently forecasts the data centers could require one hundred

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<v Speaker 1>ninety four gigawatts of power come twenty thirty five. That

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<v Speaker 1>would be equivalent to a fifth of all electricity consumed

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<v Speaker 1>in the US that year. On its own, that statistic

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<v Speaker 1>would be eyewatering. But what's even more impressive is that

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<v Speaker 1>the one hundred ninety four gigawatt figure is eighty three

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<v Speaker 1>percent higher than the twenty thirty five forecast BNF published

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<v Speaker 1>just a few months before. For a while, it seemed

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<v Speaker 1>like data center momentum was unstoppable. Then seemingly overnight, things change.

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<v Speaker 1>In the last month, governors in Texas, New York, and

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<v Speaker 1>Pennsylvania have hit the brakes on data center build and

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<v Speaker 1>the ramifications could be huge. These states account for around

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<v Speaker 1>a quarter of the country's data center pipeline and the

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<v Speaker 1>del could take a hefty bite out of developer pocketbooks.

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<v Speaker 1>Derek fleikel BNF Senior Associate in North American Policy, has

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<v Speaker 1>been tracking these developments, and he joins me in the

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<v Speaker 1>studio today to talk about two of his recent stories,

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<v Speaker 1>Pennsylvania's data center pushback raises pipeline risk and Texas data

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<v Speaker 1>center pause could cost projects billions. BNF clients can find

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<v Speaker 1>these and other relevant research by heading to BNF Data

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<v Speaker 1>Centers go on the Bloomberg terminal, or at BNF dot com.

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<v Speaker 1>If you'd like to learn more about how BNF connects

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<v Speaker 1>the dots of the energy transition, visit us at about

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<v Speaker 1>dot BNF dot com. And if you'd like to speak

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<v Speaker 1>with a member of our team about becoming a client,

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<v Speaker 1>email us at sales dot BNF at Bloomberg dot net.

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<v Speaker 1>But for now, let's talk data centers with Derek. Derek,

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<v Speaker 1>welcome back to switched On.

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<v Speaker 2>Thanks for having me back. I'll be here.

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<v Speaker 1>So, Derek, I started this podcast by talking about data

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<v Speaker 1>center build as a train, and I think even just

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<v Speaker 1>a few weeks ago, if you'd asked me, can anybody

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<v Speaker 1>stop this? I would have said no, that train has

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<v Speaker 1>left the station. It's picking up momentum, there's no stopping

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<v Speaker 1>data center build and then suddenly three governors of three

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<v Speaker 1>major states have put a pause. So can you start

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<v Speaker 1>by just telling us what exactly is happening?

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<v Speaker 2>Well, I do think there's a little bit of things

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<v Speaker 2>change very slowly and then all at once happening. There's

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<v Speaker 2>been this sort of gathering momentum of concerns about data

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<v Speaker 2>center projects. It's coming from a lot of different places

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<v Speaker 2>right concerned about AI in general, real or perceived impacts

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<v Speaker 2>on water and electricity utilization, the electricity caused impacts or

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<v Speaker 2>potentially more real to the water ones. Their modern data

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<v Speaker 2>centers are prett efficient on that ladder score, and obviously

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<v Speaker 2>electricity costs. Their impacts are going to be kind of

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<v Speaker 2>mediated by the regulatory and political environment, and also just

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<v Speaker 2>concerns about like secrecy, visual impacts, all disual, sort of

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<v Speaker 2>not in my backyard stuff. But what's happened is that

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<v Speaker 2>it's become extremely universal and intents. About seventy percent of

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<v Speaker 2>Americans would oppose having data centers built near them, and

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<v Speaker 2>so we have seen politicians begin to kind of respond

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<v Speaker 2>to this gathering and increasingly organized intense negativity. This happened

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<v Speaker 2>in a few places. New York was kind of an

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<v Speaker 2>early Harbinger, where the Governor Kathy Hochl signed an executive

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<v Speaker 2>order to do a one year moratorium on further data

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<v Speaker 2>center development. This was basically a way of getting around

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<v Speaker 2>a more radical and permanent moratorium pass by the legislature.

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<v Speaker 2>But then you also had more radical moves like the

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<v Speaker 2>governor of Texas, Craig Abbot, basically pausing all data centers

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<v Speaker 2>and definitely for an audit, and then shortly after that

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<v Speaker 2>the Pennsylvania Governor Josh Shapiro taking some formerly voluntary guidelines

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<v Speaker 2>called the grid Standards and then making them a condition

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<v Speaker 2>of any data center's getting build at all, as well

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<v Speaker 2>as removing them from a fast track perfermitting. So what

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<v Speaker 2>you're kind of seeing is politicians react to this political pressure.

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<v Speaker 2>And it should be noted that this is in the

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<v Speaker 2>middle of an election year, right, so even governors who

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<v Speaker 2>were seen to be pretty likely to win their reelection,

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<v Speaker 2>like Abbot in Texas Shapiro in Pennsylvania, they have some

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<v Speaker 2>concerns that this might be a reason to drop them

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<v Speaker 2>off the ticket, or in Shapiro's case, they're looking at

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<v Speaker 2>a presidential run later, So everybody wants to be on

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<v Speaker 2>the right side of this issue and sort of stand

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<v Speaker 2>up as a populist against the big tech companies. At

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<v Speaker 2>least that's the perception they're trying to cultivate.

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<v Speaker 1>Seventy percent of Americans being against something in an election

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<v Speaker 1>year is a massive statistic. And I want to come

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<v Speaker 1>back to the political context and why all of this

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<v Speaker 1>is happening right now, but first I want to just

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<v Speaker 1>dive into a few numbers with you. So, for starters,

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<v Speaker 1>are these pauses actually going to have a noticeable impact

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<v Speaker 1>on bill Sure, so.

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<v Speaker 2>It depends on where you're talking about. New York is

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<v Speaker 2>technically the eleventh state in terms of data center pipeline

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<v Speaker 2>out of fifty, but these are highly concentrated, so New

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<v Speaker 2>York's doesn't matter that much. Texas, however, is the top

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<v Speaker 2>state in terms of pipeline, has about twenty percent by itself,

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<v Speaker 2>so the potential impact of that is pretty large. Let's

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<v Speaker 2>imagine that this pause simply delays all of the data

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<v Speaker 2>centers planned for the next three quarters until the second

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<v Speaker 2>quarter of twenty seven. If that were the case, you

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<v Speaker 2>have to then think about what the actual rental revenue

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<v Speaker 2>is for a data center. If it's AI, it's about

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<v Speaker 2>ten x what it would be for a traditional co

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<v Speaker 2>location data center can be over a billion US dollars

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<v Speaker 2>per kig awak per month. So in that terms, if

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<v Speaker 2>you imagine about sixty percent of the Texas data center

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<v Speaker 2>pipeline for the next three quarters is AI, you're looking

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<v Speaker 2>at over eight billion dollars revenue impact.

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<v Speaker 1>Wow. So in Texas alone, we're talking a fifth of

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<v Speaker 1>the US data center pipeline. And you said eight billion

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<v Speaker 1>dollars of impact.

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<v Speaker 2>If that's merely delayed for one to three quarters, right,

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<v Speaker 2>that's a completely separate question from.

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<v Speaker 1>So that's not even delayed for a year, that's delayed

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<v Speaker 1>for nine months tops right now.

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<v Speaker 2>Obviously this is sensitive to assumption, it's about revenue and

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<v Speaker 2>what percentage or AI, But like as a benchmark, it's

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<v Speaker 2>pretty big just around things that I point out that

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<v Speaker 2>Pennsylvania is, it's in the top five data center states

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<v Speaker 2>in the US. It's the third largest one in PGM,

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<v Speaker 2>which is the biggest data center market collectively. PGMs had

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<v Speaker 2>a lot of impact issues with a capacity market with

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<v Speaker 2>increasing charges based on a disjuncture between really large data

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<v Speaker 2>center load expected and inability to build enough power infrastructure

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<v Speaker 2>for that, so there could be some ripple effects throughout

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<v Speaker 2>that market as a result of Pennsylvania's policy moves.

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<v Speaker 1>So one of the really striking things to me about

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<v Speaker 1>this list of states that we have is that Pennsylvania

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<v Speaker 1>and New York both have democratic governors who tend toward

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<v Speaker 1>policy slowing build making sure things are happening the way

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<v Speaker 1>the state wants them to happen. Texas, on the other hand,

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<v Speaker 1>is a very red state and has always had a

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<v Speaker 1>very laissez faire approach to business to build out of

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<v Speaker 1>infrastructure and businesses. So what exactly has happened in Texas

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<v Speaker 1>specifically they would push Greg Abbott to demand this pause.

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<v Speaker 2>Well, something that's very powerful in Texas is local property

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<v Speaker 2>owners and there are sort of concerns for the character

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<v Speaker 2>and local impacts in their community. There is a strong

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<v Speaker 2>sort of pro development orientation, but you can see that

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<v Speaker 2>a lot of places in Texas they're sort of concerned

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<v Speaker 2>about the infrastructure that we need to be built. Right.

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<v Speaker 2>You know, thirty three billion dollars in transmission, which is

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<v Speaker 2>mostly going to West Texas, the PERMIA, and a lot

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<v Speaker 2>of it might even be associated with oil and gas,

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<v Speaker 2>which is traditionally more favored. That's become quite controversial. There's

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<v Speaker 2>a lot of individual counties that have begun sort of

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<v Speaker 2>worrying about trying to restrict data centers and then finding

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<v Speaker 2>that in many cases unincorporated communities don't really have that ability,

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<v Speaker 2>and so you start lobbying at the state level. There's

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<v Speaker 2>just all these broader cultural and regulatory concerns, and we

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<v Speaker 2>should know the texts. It's not just that it's pro development.

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<v Speaker 2>It's one of the few states that's had a lot

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<v Speaker 2>of load growth for a long time because of population

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<v Speaker 2>growth industry, even when the rest of the US didn't.

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<v Speaker 2>Your system is extremely flexible, and yet it just seems

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<v Speaker 2>like that very reputation has attracted so much business to

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<v Speaker 2>Texas that there's a huge amount of concern. If you

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<v Speaker 2>look at the large load interconnection queue that URKAT the

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<v Speaker 2>grid regulatormanges, that's like over for gigawatts now, and that's

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<v Speaker 2>just many, many times what peak car demand has ever

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<v Speaker 2>been in Texas. Despite the huge size that market and

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<v Speaker 2>its flexibility, the result is people don't really believe that

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<v Speaker 2>the system can manage it. There has to be some

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<v Speaker 2>way of calling it out. Ironically, this actually interrupts a

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<v Speaker 2>process that was intended to do this. Sent Bill six

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<v Speaker 2>or SB six, passed texas last legislative session ad mid

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<v Speaker 2>twenty twenty five, and Abbott's order came literally days before

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<v Speaker 2>Urkatt was supposed to proceed with what's called Batch zero

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<v Speaker 2>that was going to be a big batch study of

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<v Speaker 2>this subset of a little bit over twour Gigawatson projects

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<v Speaker 2>that were relatively ready to go in terms of what

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<v Speaker 2>could be studied and what could be given grid connection rights.

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<v Speaker 2>So basically you're in a situation where whether people didn't

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<v Speaker 2>have confidence in that process or they wanted to be

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<v Speaker 2>even more restrictive the regulatory procedure that was meant to

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<v Speaker 2>handle this and might have been a positive sort of

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<v Speaker 2>role model for other regulatory processes that was just about

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<v Speaker 2>to pop off, and now it's being interrupted. This actually

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<v Speaker 2>creates a pretty big risk in the Texas's legislature is

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<v Speaker 2>going to meet again in twenty twenty seven, and if

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<v Speaker 2>this audit process lasts long enough, it could lead to

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<v Speaker 2>sort of regulatory landscape shifting under the feet of even

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<v Speaker 2>these Batch zero game centers, the ones that are ready

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<v Speaker 2>to go earlier. So you could see impacts on you

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<v Speaker 2>anywhere from two hundred to four hundred gigawatts of interconnection requests. Now,

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<v Speaker 2>one thing to note is these interconnections requests are not

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<v Speaker 2>necessarily as firm as more later stage projects. If you

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<v Speaker 2>look at the sort of pipeline that we look at,

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<v Speaker 2>we think that there's maybe about fifty gigawatts of projects

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<v Speaker 2>that are really proceeding meaningfully. There might be a lot

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<v Speaker 2>of things that are either duplicative or speculative that are

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<v Speaker 2>really clogging up that large load interconnection queue. And then

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<v Speaker 2>we think there's an even smaller subset that are actually

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<v Speaker 2>going to get built of the pipeline. So there's an

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<v Speaker 2>important planning aspect of clearing out the more speculative requests

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<v Speaker 2>that text us, along with a lot of other states

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<v Speaker 2>or regional grids like PJAM, are trying to figure out.

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<v Speaker 1>I love that you started this conversation with that old quote.

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<v Speaker 1>It's a Hemingway quote that has then sort of changed

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<v Speaker 1>context and changed being over time that things happen slowly

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<v Speaker 1>and then all at once, Because it really strikes me

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<v Speaker 1>this thing you said that Greg Abbott has put in

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<v Speaker 1>this pause, but now that's actually giving a chance for

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<v Speaker 1>the legislature to go back and say, actually, no, we're

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<v Speaker 1>going to make a lot more change. So this really

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<v Speaker 1>could be the tip of the iceberg that we're seeing

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<v Speaker 1>on data center revamping and revamping of the data center

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<v Speaker 1>pipeline in Texas. How about in Pennsylvania. What does Josh

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<v Speaker 1>Shapiro's moratorium look like?

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<v Speaker 2>Sure? So, I mean there's a few different things to

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<v Speaker 2>point out. One thing is we don't know how long

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<v Speaker 2>these pauses or audits are going to last. In many cases,

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<v Speaker 2>this might simply be kicking the can until after the

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<v Speaker 2>November election and then perhaps resolving it quickly there in

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<v Speaker 2>a lame duck period when people are no longer accountable

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<v Speaker 2>to voters, at least not immediately accountable. On the Pennsylvania side,

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<v Speaker 2>I would also point out it's not strictly a pause. Basically,

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<v Speaker 2>it's new rules requiring a certain amount of clean power

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<v Speaker 2>to be sourced for data center project, rules requiring local

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<v Speaker 2>permitting to proceed first before state permitting rules, getting rid

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<v Speaker 2>of a fast track for data centers. All of this

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<v Speaker 2>is basically a way of slowing it down. I guess

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<v Speaker 2>instead of a wall, it's maybe more of a kind

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<v Speaker 2>of series of banana peals or other sort of like

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<v Speaker 2>slow mucky things in front of the path of data centers.

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<v Speaker 2>Shapiro is careful to say, you know, I've supported a

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<v Speaker 2>few real advanced projects that will bring local jobs. I

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<v Speaker 2>think the majority of these projects are speculative, and there

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<v Speaker 2>have been things like NDAs or other tactics that local

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<v Speaker 2>communities don't like. So this is really an attempt at

0:11:14.640 --> 0:11:17.000
<v Speaker 2>Q clearing in its own way. By making it so

0:11:17.080 --> 0:11:19.240
<v Speaker 2>that the projects which can't really proceed, you know, don't

0:11:19.240 --> 0:11:22.319
<v Speaker 2>have enough community benefits and buy in, don't have enough assets,

0:11:22.520 --> 0:11:24.400
<v Speaker 2>there's a role I can move forward very slowly or

0:11:24.400 --> 0:11:24.760
<v Speaker 2>not at all.

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<v Speaker 1>So there's also something in the Pennsylvania Executive Order about

0:11:28.160 --> 0:11:29.599
<v Speaker 1>clean power right.

0:11:30.240 --> 0:11:32.320
<v Speaker 2>Yes, as mentioned, part of the grid standards is that

0:11:32.360 --> 0:11:35.800
<v Speaker 2>data centers would have to source an increasing percentage of

0:11:35.880 --> 0:11:39.079
<v Speaker 2>their power from quote clean firm sources. That could be

0:11:39.320 --> 0:11:42.600
<v Speaker 2>anything from solar or wind ideally the storage to nuclear

0:11:42.840 --> 0:11:44.880
<v Speaker 2>or you know, burning hydrogen. Basically you have to get

0:11:44.920 --> 0:11:48.960
<v Speaker 2>ten percent initially and it could go up to about

0:11:49.040 --> 0:11:51.040
<v Speaker 2>a little bit over a third by twenty thirty five.

0:11:51.160 --> 0:11:53.760
<v Speaker 2>It's not a majority, but it's intended to make their

0:11:53.760 --> 0:11:57.520
<v Speaker 2>sources cleaner. Also, one has to use relatively efficient, low

0:11:57.520 --> 0:11:59.920
<v Speaker 2>emission diesel generators, sort of reducing some of the local

0:12:00.120 --> 0:12:02.000
<v Speaker 2>air impacts even beyond climate.

0:12:02.240 --> 0:12:04.560
<v Speaker 1>So in a way, it feels like this moment in

0:12:04.679 --> 0:12:07.000
<v Speaker 1>data centers is touching on so many of the things

0:12:07.040 --> 0:12:09.640
<v Speaker 1>we talk about at B andF. We're talking about clean power,

0:12:10.080 --> 0:12:13.440
<v Speaker 1>solar wind, we're talking about long rid queues, we're talking

0:12:13.480 --> 0:12:16.480
<v Speaker 1>about potentially using gas generation. We're even talking about customer

0:12:16.559 --> 0:12:20.280
<v Speaker 1>electricity bills. But above all of that, of course, the

0:12:20.320 --> 0:12:22.640
<v Speaker 1>elephant in the room is the November election and the

0:12:22.679 --> 0:12:26.440
<v Speaker 1>politics of it. So as a final question, why is

0:12:26.480 --> 0:12:30.280
<v Speaker 1>this November election having such a profound impact on the

0:12:30.320 --> 0:12:33.120
<v Speaker 1>behavior of these governors and what can we expect going

0:12:33.160 --> 0:12:35.200
<v Speaker 1>forward in terms of data centers and politics.

0:12:35.480 --> 0:12:38.440
<v Speaker 2>Okay, so I mean, firstly, about thirty six of the

0:12:38.480 --> 0:12:42.080
<v Speaker 2>fifty states have gerberatorial elections this year, so there's a

0:12:42.160 --> 0:12:44.600
<v Speaker 2>lot of different people at risk. There's a lot of

0:12:44.640 --> 0:12:48.920
<v Speaker 2>sort of policy imitation happening right now. It's also it's

0:12:48.920 --> 0:12:50.640
<v Speaker 2>a midterm year that tends to me that it's more

0:12:50.880 --> 0:12:55.640
<v Speaker 2>motivated and often higher information, more ideological voters who tend

0:12:55.640 --> 0:12:58.000
<v Speaker 2>to show up. That means that activist types can really

0:12:58.000 --> 0:13:01.520
<v Speaker 2>skew these things in unusual ways. It is also a

0:13:01.920 --> 0:13:06.640
<v Speaker 2>democratic leaning year. Usually the president's party loses seats in

0:13:06.679 --> 0:13:09.880
<v Speaker 2>the House in the midterms, so if you're Craig Abbott,

0:13:09.960 --> 0:13:13.400
<v Speaker 2>you maybe unusually threatened. Even in a highly republican state

0:13:13.480 --> 0:13:15.880
<v Speaker 2>like Texas, there have been anecdotal reports of like you know,

0:13:16.080 --> 0:13:19.640
<v Speaker 2>very long running traditional or real Republicans in Texas thinking of

0:13:19.720 --> 0:13:23.080
<v Speaker 2>voting for she and a Hinajosa, the Democratic challenger to Abbot,

0:13:23.120 --> 0:13:26.000
<v Speaker 2>because she wants a straight and her moratory aumrors campaign

0:13:26.080 --> 0:13:28.400
<v Speaker 2>on that. So I think what it is is just

0:13:28.400 --> 0:13:31.560
<v Speaker 2>a very unusual year where all the stars are kind

0:13:31.559 --> 0:13:35.439
<v Speaker 2>of aligning for both parties to be unusually wary about

0:13:35.800 --> 0:13:39.880
<v Speaker 2>local pushback, and where political coalitions might realign a little

0:13:39.880 --> 0:13:42.520
<v Speaker 2>bit around this surprisingly by PARTI is in an intense

0:13:42.600 --> 0:13:46.760
<v Speaker 2>issue that both conservatives and progressives tend to find major

0:13:46.800 --> 0:13:47.360
<v Speaker 2>objection to.

0:13:47.840 --> 0:13:50.520
<v Speaker 1>That is incredibly fascinating. Thank you so much for coming

0:13:50.520 --> 0:13:51.720
<v Speaker 1>on speaking to us today.

0:13:52.360 --> 0:13:54.040
<v Speaker 2>Very glad to thanks for the opportunity to colo.

0:14:02.840 --> 0:14:05.960
<v Speaker 1>Today's episode of Switched On was produced by Cam Gray

0:14:06.160 --> 0:14:09.880
<v Speaker 1>with production assistance from Kamalas Shelling. Bloomberg NIF is a

0:14:09.920 --> 0:14:13.040
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0:14:13.160 --> 0:14:15.840
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0:14:15.880 --> 0:14:19.760
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0:14:19.800 --> 0:14:23.000
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0:14:23.040 --> 0:14:26.360
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0:14:26.440 --> 0:14:29.440
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