ENB Pub Note: Doug Sheridan on LinkedIn has an excellent feed, and we highly recommend following him. He brings up some huge points on the ERCOT grid, and we will be expanding on this article later. What Doug really points out is that the Data Center market could overpower the underutilized natural gas generators and pull them behind the meter, rendering them useless to ERCOT for use in grid stability.
If we owned stranded or under-utilized gas-fired generation plants in Texas (or any other state) subsisting only on the economic table scraps thrown to them through ERCOT’s vanishing peaking opportunities and ancillary/backup programs, we would seriously be talking to developers of data centers about repurposing—and even relocating out of Texas—those facilities’ gas turbines to provide the early years of 24/7 power necessary get their AI facilities online until newer, currently backlogged turbines can be installed.
After all, deep-pocketed tech giants like Amazon, Google, Microsoft and Meta in a race to master AI and willing to spend up to $10 billion per facility should certainly be willing to cover the costs of relocation/repurposing of turbines, while also paying up for the value of the assets—which are clearly considerable to them given what’s at stake.
And don’t tell us this would be unfair to Texas or Ercot. The state politicians, regulators and political donors who have been running the state’s grid for the last several years have had no problem kneecapping the economics of the state’s legacy gas-fired generation in favor of first-in-line subsidized renewables. As we see it, gas-fired plant owners owe a rules-shifting, game-playing Texas nothing at this point.
There seems to be plenty of opportunity for such a market-meeting play. To wit, ERCOT now lists over 170 GW of committed resources—for a system that has never hit 90 GW of demand. As a result, the North American Electric Reliability Corporation (NERC) calculates the system’s current on-peak reserve margin at a whopping 40%.
In short, the Texas power grid screams capital inefficiency in every way. So, why shouldn’t owners of underutilized gas turbines trapped on the renewables-heavy system consider repurposing them to applications and locations that value them to a far greater extent than does Texas? Isn’t that how markets are supposed to work?
The reality is the Texas power market hasn’t been a free market for many years now. But that doesn’t mean owners of gas turbines stranded on its grid can’t take advantage of a red-hot market for gas-turbines to power data centers—either behind-the-meter in Texas or on grids in other states that haven’t willfully poisoned the economic well for gas-fired generation like Texas has.
Bottom Line 1: Texas hasn’t been a good-faith partner to gas-fired generators for many years now. So why shouldn’t owners of the gas-turbines trapped on—and mistreated by—the state look elsewhere to achieve maximum value for their assets?
Bottom Line 2: Either America is in a race to win the AI race… or it’s not. If we are, our guess is any hurdles to repurposing legacy turbines stranded on renewables-heavy grids like Texas can be overcome more easily by deep-pocketed tech companies—who see themselves in a battle for the ages—than many might perceive.
Are we wrong?
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