Texas Governor Greg Abbott’s efforts to slow down data center construction, just as voters head to the ballot box, are starting to work.

By Shruti Date Singh, Nic Querolo, Joe Lovinger and Michelle Cheng Developers are starting to look elsewhere following the governor’s sudden pivot from data center champion to skeptic. States like Utah and Georgia come up in conversation. Iowa is also seen as an alternative destination for their projects, according to people familiar with the matter.

That could threaten the pace of development in Texas, which has been on track to usurp Virginia as the data center capital of the world. But as Abbott’s road to a fourth term, one that would make him the state’s longest-serving governor, got rockier thanks to a surprisingly strong Democratic opponent, he changed tack. Texas’ environmental regulator, Abbott said, wouldn’t hand out any more permits to data centers until the state’s grid operator completed an audit of those applicants, all of whom were waiting for approval to use power.

Even the mightiest companies are feeling the impact. Banks are delaying the sale of bonds tied to a Texas data center that will be leased to Anthropic PBC, which is pursuing what may be the biggest initial public offering ever. The Claude creator said this week that the Texas regulations inhibit the expansion of computing power that its AI models depend on.

Abbott, who once touted his state as the “epicenter of AI development,” is now erecting obstacles to slow it down.

The governor is seemingly responding to a broad, bipartisan distaste for data centers. Many developers see the Texas pause as a political ploy that will evaporate after the midterm elections, but recognize the need to fine-tune their pitch to local governments and skeptical residents.

While data centers can bring some jobs and, over time, billions of dollars in tax revenue to cash-strapped towns – though in Texas, many qualify for tax exemptions – voters worry about their water and energy use, and some see them as an engine powering technology that will steal people’s livelihoods. Nowhere is that tension more acute than in Texas, which has more data center projects in progress than any state in the country.

Developers have been drawn to Texas’ ample space and its ability to tap sources like solar, wind and natural gas for electricity. The state can add more capacity to its grid than any other region in the US, said Curt Holcomb, Texas data center lead at JLL.

But now, investors and bankers are struggling to get a grasp on what the governor’s actions mean for the industry’s future in the Lone Star state. Lenders are scrutinizing companies looking to raise financing for projects there, according to one person familiar with the matter, adding that more speculative plans will struggle to attract investors.

Texas “remains one of the most attractive data center markets in the US,” said Jack Painter, vice president of energy and utilities at Capstone, a Washington-based consulting firm.

“That doesn’t necessarily mean you don’t see some percentage of what’s currently in the ERCOT queue consider shifting to, let’s say, an Arizona or a Utah or a Georgia,” he added, referring to the Electric Reliability Council of Texas, which operates the grid. “Governor Abbott’s position is clear: Texans come first,” a spokesperson for his office said.

“Data centers must pay their own way, protect our grid and water, and complete the state audits. Until they do, no state agency will issue related permits and any project that fails those standards will be denied.”Some developers have filed complaints over delays that they say put their deals at risk because of the audits.

That includes land developer Tract, which was expecting approvals to connect a proposed 500-megawatt data center near San Antonio to the grid, but was told last month that state regulators want more evaluations for the site. The Colorado-based company’s 265-acre development in Medina County, one of its 14 active projects across seven states, is now caught up in a dispute with ERCOT.

“Any delay of this proceeding beyond the conclusion of ERCOT’s audit and verification process will cause irreparable harm,” Tract wrote in a Sept. 30 complaint filed with the Public Utility Commission of Texas.

Requiring more studies from the company “is not just a delay of a few months, it could kill a project.”Rowan Digital Infrastructure, a Denver-based data center developer, is also challenging the ERCOT review, which came a year after it received initial approval for “Project Stampede,” part of a $4.2 billion data center campus north of Austin. The pause creates a “material risk that the project loses access to additional financing because of the regulatory uncertainty,” Rowan wrote in a complaint.

‘Political Reasons’Some analysts and developers suggest that Abbott’s actions may be more of a political maneuver than a genuine effort to slow the state’s embrace of data centers, which rankles a majority of voters. A poll from the University of Texas and the Texas Politics Project found that 57% of Texans oppose the construction of one in their community.

Gina Hinojosa, the Democratic nominee for governor, has channeled that discontent in her campaign by calling for a moratorium on data center development. She’s only a few points behind Abbott in the polls, giving her a real shot to claim a position the party hasn’t won since 1990.

“Greg Abbott’s tough talk on data centers is nothing more than an election year stunt,” Hinojosa said earlier this month. “Abbott invited these data centers to Texas with the richest tax breaks in the country, and then pretended to pause approvals for political gain.”Raul Martynek, chief executive officer of Dallas-based developer DataBank, also believes “political reasons” are behind Abbott’s permit freeze.

“He needed to kick the can past the election and then be able to resume from there,” Martynek said.

DataBank, which has already developed almost 350 megawattsof data center facilities in Texas — enough to power almost 90,000 Texas homes— is still pursuing projects in the state and expects it to remain a top destination for new facilities, despite the new regulations and long queue to connect to the grid. Martynek sees the added scrutiny shaking out some of the more speculative developers who file requests for significant power without the capacity to complete their projects.

Plus, implementing the audit helped to postpone a report from ERCOT that would have forecast power demand from high-capacity industrial consumers – including data centers – just before the Nov. 3 election.

“Any headlines about that number would have potentially impacted his reelection bid and frustrated voters even more,” Capstone’s Painter said. “The audit ultimately pushed those headlines until after the election.”