When Texas Says No: The ERCOT Paradox Nobody Is Discussing
Texas was supposed to be AI infrastructure’s promised land.
Cheap electricity. Business-friendly regulation. No state income tax. Land for days. The perfect formula for compute expansion while the rest of America choked on permitting delays.
Then ERCOT published its October 2025 forecast.
205 gigawatts of large load interconnection requests.
Up from 56 gigawatts just thirteen months earlier.
A 227% increase, with 73% attributed to data centers alone.
The grid that was supposed to power America’s AI revolution now needs “thousands of miles of new transmission” at costs exceeding $30 billion.
And Texas SB-6 just created new regulatory burdens that turn cheap Texas power into an expensive compliance problem.
I spent three hours last week on a call with partners evaluating Texas market entry. The numbers that looked compelling six months ago now look like traps.
The Illusion of Deregulation
Texas electricity isn’t deregulated.
It’s differently regulated.
ERCOT operates as an island, isolated from national interconnections that let other regions share load during emergencies. This independence was a selling point: no federal oversight, no cross-border complexity, pure market economics.
The 2021 winter storm exposed the vulnerability. Four million homes lost power. Hundreds died. The political response created oversight requirements that now complicate large-load interconnections.
Data center developers who chose Texas specifically to avoid regulation discovered they’d traded federal oversight for state oversight that can change based on which way the political wind blows after the next freeze event.
SB-6 requires large electricity consumers to demonstrate reliability contributions before receiving firm power commitments. Sounds reasonable until you realize “reliability contributions” means either on-site generation capacity or contractual arrangements that effectively create the same grid dependencies Texas was supposed to avoid.
The WhiteGlove Problem
Last week, we discussed Texas market entry with partners who know the terrain. Their pitch: Economic Development Corporations across the state are hungry for data center investment. Land deals are available. Local officials want the tax revenue.
But here’s what the pitch didn’t address: Texas’s independent grid means every deployment bet carries binary weather risk. The same isolation that eliminated federal compliance created a single point of failure that no amount of local political goodwill can solve.
When ERCOT calls for conservation events, your compute goes down. When transmission constraints limit power delivery to your region, your SLAs become suggestions. When the next freeze event triggers another political crisis, the regulatory response will affect your operational economics in ways you cannot model today.
The EDC relationships are real.
The land availability is real.
The political friendliness is real.
The grid reliability problem is also real, and it doesn’t care about political friendliness.
The Urkott Factor
Texas power infrastructure isn’t owned by ERCOT. It’s managed by utilities operating under ERCOT coordination. The largest transmission providers in targeted development regions have their own capital constraints, permitting timelines, and strategic priorities.
Convincing a county to approve your project is step one.
Convincing the transmission provider to prioritize your interconnection is step two.
Those are different political economies with different stakeholders and different timelines.
The partners we spoke with acknowledged this directly: data center developers in Texas are discovering that local approval doesn’t guarantee grid access. The bottleneck has shifted from planning commission to transmission infrastructure investment decisions that happen in utility boardrooms, not county courthouses.
The European Alternative
While Texas debates grid expansion financing, European markets with established utility partnerships offer something Texas cannot: locked pricing without weather roulette.
Six-year fixed power agreements. Grid distribution cost elimination through local power plant connections. Dedicated infrastructure without queue competition.
The unit economics favor Texas on paper. Electricity costs look lower. Land costs are minimal. Tax incentives appear generous.
But paper economics assume grid availability. When that assumption fails, Texas’s cost advantage becomes a liability advantage. Your cheaper power becomes no power at all, and your contracts don’t care about force majeure clauses you thought would protect you.
The Real Opportunity in ERCOT’s Chaos
Texas will remain attractive for certain use cases. Training runs that can tolerate interruption. Workloads with genuine flexibility. Companies willing to accept reliability risk in exchange for cost reduction.
But enterprise SLAs require enterprise reliability. AI inference serving production traffic cannot tolerate conservation events. Financial services computing cannot wait for grid recovery after ice storms.
The gap between what Texas promises and what Texas delivers creates demand for alternatives that seemed unnecessary two years ago. Energy-sovereign infrastructure that doesn’t depend on ERCOT coordination. Modular deployment that can relocate when regulatory environments shift.
Texas taught the AI industry that cheap electricity isn’t cheap if it’s unreliable. That lesson is reshaping infrastructure strategy across the sector.
The state that wanted to be AI’s capital is becoming AI’s cautionary tale.
Strategic Implications
If you’re evaluating Texas deployment, ask questions your broker won’t volunteer.
What happens to your interconnection timeline when the next 50 GW of requests arrive behind you in the queue?
What’s your backup when ERCOT calls emergency conditions during your highest-value compute window?
How does your insurance policy treat grid-related losses after the precedents set in 2021?
The answers might still support Texas investment.
But they won’t be the answers you’d have gotten twelve months ago, and they definitely won’t be the answers you’ll get twelve months from now.
Texas is still building AI infrastructure.
Whether it can reliably power AI infrastructure remains an open question that $30 billion in transmission investment is supposed to answer.
I wouldn’t bet my compute on “supposed to.”
JF is a C-level executive and serial entrepreneur who has founded 110+ startups. He runs the AI Executive Transformation Program in Prague and writes about uncomfortable truths in AI implementation at “AI Off the Coast".
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