Texas data center expansion halts as Abbott orders audits and permit pauses

Governor Greg Abbott has effectively paused new data center construction in Texas by ordering state agencies to audit water and power usage for every major project. The directive requires the Public Utility Commission and the Electric Reliability Council of Texas to verify consumption levels before any state agency issues a permit. Abbott said that projects failing to meet these new standards will be denied approval until they complete the audits.

The shift marks a sharp turn from the state's previous business-first stance. Balaji Tammabattula, chief operating officer of BaRupOn LLC, said the governor's office previously assisted developers by recommending sites and introducing them to county officials. His company bought 700 acres in Liberty, Texas, in 2023 for an industrial campus that includes data centers and power plants. Tammabattula noted that the office now struggles to respond to emails, a stark contrast to the previous level of support.

Political pressure has accelerated this regulatory change. Data center projects have become a bipartisan issue in the upcoming midterm elections. Abbott faces a tight reelection race against Democratic state Rep. Gina Hinojosa. His press secretary, Andrew Mahaleris, said the governor is setting clear guardrails to protect Texans against intrusive development. Mahaleris stated that data centers must pay their own way and protect the grid and water resources.

Industry analysts report that the political risk has replaced grid interconnection as the primary concern for developers. Olivier Beaufils, a head researcher at Aurora Energy Research, said political backlash was previously considered a remote risk. Now, companies are anxious about the uncertainty surrounding the legislative session in January. Beaufils indicated that the industry expects to engage with these political issues for the next six months.

Community opposition has already forced withdrawals. Diode Ventures canceled its plans for a data center in Henderson County after Abbott’s directives and local complaints about water usage. Abbott said the company made the right decision by withdrawing. A spokesperson for Diode cited due diligence findings and feedback from community members as the reasons for stopping the project. The company said it shares Abbott’s emphasis on responsible infrastructure development.

The national data center capacity tripled between 2020 and 2025. Tony Lenoir, an associate director at a market research firm, expects this capacity to triple again by 2030. Dan Thompson, a research director at 451 Research, said about two-thirds of tracked data center projects across the country are at risk due to community pushback or pending legislation. Developers are now changing their engagement strategies to address near-total opposition in local communities.