CUTTING GRID QUEUES

Many territories have a backlog of large-load grid connection applications, mostly for data center projects, including many proposals considered to be speculative, duplicative, or otherwise non-viable. The state of Texas (US) has one of the largest backlogs, with a total interconnection queue of around 474 GW, including about 300 large loads (greater than 75 MW). The requested demand is more than five times the state's record peak electricity demand. Approximately 90% of the backlog is for data center projects.

In 2025, Texas passed Senate Bill 6 (SB 6), designed to manage demand and protect grid reliability, while protecting other electricity customers from the costs and risks associated with very large new loads.

SB 6 authorized the Public Utility Commission of Texas (PUCT) to introduce a batch-based connection process, requiring large projects (above 75 MW) to apply to the transmission service operator (TSO, the Electric Reliability Council of Texas (ERCOT), while smaller projects apply to local utilities. It also imposed costs on entering the approval process, including a requirement for $50,000 security per MW requested.

After applying these conditions, ERCOT currently has around 300 large projects under consideration. It was due to select the first group of proven-viable projects (known as Batch Zero) on August 7, 2026, before advancing them to the next phase of approval.

New audit obligations

On August 3, 2026, Texas Governor Greg Abbott announced an audit of all data center applications: no new data center project can be approved until ERCOT and the regulator, the PUCT, have audited every application. This audit is to establish:

• The extent to which the project is paying its way or whether it is dependent on tax incentives, grants, abatements or other public financial assistance.
• The projected peak and annual electricity consumption, and the extent to which the project will use on-site electric generation or other measures to reduce demand on the ERCOT grid.
• The projected water consumption and sources of supply, including the extent to which the project uses or reuses its own water, along with details of plans to use air-cooled, closed-loop or other cooling systems.
• Measures to reduce impacts on property owners and communities, including noise mitigation, light controls, setbacks, traffic improvements and emergency response coordination.
• The ownership and controlling interests in the project.
• Whether the application complies with all applicable state regulations and legislation governing data centers.

ERCOT has paused the next phase of the Batch Zero process while it completes the audit, which is scheduled to conclude by December 2026. A parallel interconnection study, due to complete by April 2027, will identify upgrades needed to support the designated Batch Zero interconnections. The conclusion of the Batch Zero study will likely be delayed beyond the April 2027 deadline.

The Data Center Alliance and operators/developers including Meta, Google, OpenAI, Amazon, Core Scientific, Riot Platforms, Sailfish Digital Ventures, PowerHouse, CoreWeave, and Emergent Data Centers have all expressed support for the audit.

The pause does not apply to:

• Projects with on-site power that do not connect to the grid (although these may still require PUCT registration and other regulatory obligations).
• Projects below 75 MW that connect to the grid at the discretion of local utilities.
• Projects in East Texas, the Texas Panhandle or El Paso that are connected to the neighboring Western and Eastern Interconnection grids, rather than the ERCOT grid.

Rationale for the audit

The audit comes amid increasing public opposition to data centers, particularly concerning water consumption, and has largely been driven by two factors:

• Failure to supply required information. Governor Abbot has said that developers' failure to comply with the PUCT's survey measuring power and water use under the General Appropriations Act made the audit necessary. 
  Data centers have consistently failed to complete the PUCT survey, as well as a compulsory audit of water use by the Texas Water Development Board (TWDB). On September 14, Governor Abbott directed the TWDB to impose legal consequences for noncompliance.
• Financial requirements did not reduce the queue sufficiently. In June 2026, ERCOT estimated that around 100 GW of projects would clear the Batch Zero screens, including providing financial security. By August 2026, it was clear that 205 GW of projects had provided the required financial guarantees and met the remaining screening requirements.

If 205 GW of projects have posted $50,000/MW in security, this would amount to around $10 billion. Currently, 20% of this amount will be non-refundable. A proposed code (16 Texas Administrative Code Chapter 25) would make 80% non-refundable, but this proposal has not become law. Significant funds will be tied up for the length of the Batch Zero process.

BloombergNEF estimates that the audit will affect around 20% of the US data center pipeline, and the delay could result in data center revenue losses of up to $8 billion by Q1 2027. In practice, this is likely an overestimate, as Batch Zero was already oversubscribed, and the audit may help to reduce the backlog of speculative projects.

Shift to behind-the-meter power

The audit's inclusion of on-site energy sources foregrounds a shift in Texas projects toward behind-the-meter (BTM) power. This shift was already underway in response to growing connection queues and is also recognized and encompassed in SB6. Data centers with BTM power will be required to participate in demand response programs, and on-site energy is expected to become a requirement for new projects after Batch Zero.

On-site energy is included within the audit to enable the PUCT to assess the generation capacity available for demand response. Although projects that are not connected to the grid are exempt from the audit, they will be subject to scrutiny through other authorization processes.

Most BTM projects in Texas are at an early stage of development. However, roughly 20 GW of gas-powered BTM data center capacity has been announced, which includes Pacifico Energy's GW Ranch (up to 5 GW), Permian Partners (up to 5 GW), and Energy Abundance's Data City (up to 5 GW), as well as Fermi America's Project Matador, GridFree AI sites, Microsoft-Chevron Project Kilby and others.