The AI Data Center energy drain on the grid, are green tax credits being abused?

Let's look at Texas and ERCOT for a few of the symptoms, and how the Big Beautiful Bill gets dragged across the finish line. Like a corpse, or pushed forward like the President wants.

Carbon Credits and Tax Credits go hand in hand, and I was unaware of how far the Data Center and tech companies would take advantage of taxpayers and electricity consumers. To help set the stage, let’s look at Doug Sheridan’s post on LinkedIn two days ago.

Doug Sheriden writes this week on LinkedIn.

Riddle us this...

Is ERCOT, the main grid in Texas, in the midst of a classic bubble, one driven not by a need or use for the huge amounts of renewables and battery energy storage system (BESS) capacity piling onto the system... but by developers of such projects and their tax-equity partners rushing to use the Texas grid—with its promise of fast interconnects and friendly regulatory regimes—as a kind of easy clearinghouse for activating upfront federal Investment Tax Credits (ITCs) for their projects before the tax code changes?

If that's not enough, there's also incentive to build excess capacity from hyperscalers like Meta, who sign long-term power purchase agreements to get the renewable assets built. But the data centers for which Meta is supposedly purchasing the power aren't necessarily even in Texas. In some cases, Meta might simply pay for the renewable power it contracted for, resell it back into the Texas grid, and then claim a Meta data center in another state to be green.

Lest you think we're off our rocker, consider that Ercot reports developer interest in connecting to its system for a whopping 400 GW of nominal solar, wind and BESS capacity. This is for a self-contained grid that has an all-time demand peak of less than 90 GW, reports current on-system and available resources of 170 GW, and boasts a reserve margin of over 40%.

Texas is the No. 1 gas producer in the US. Yet, because of the growing overhang in first-in-line intermittent renewables and limited duration BESS capacity, Texas is unable to attract—even with the promise of state subsidies—newbuild gas-fired generation, including the kind of dispatchable 24/7 capacity it will so badly need in coming years. That's because the economic well on Ercot is so poisoned for gas-fired generation that developers can't justify investing.

Throw in the fact that between the recent passage of SB6, which automatically makes certain "large load" customers interruptible on the state's grid and system administrators' growing love affair with demand response measures to deal with peak demand, and it all screams the potential for the kind of misallocation of capital and overbuild that Texas is so prone to court.

A bubble would problematic for everyday Texans and Texas businesses. Why? Because a grid ladened with generating assets owned, operated or maintained by financially strapped, or even bankrupt, parties isn't in anyone's interests—including Texas residents and small businesses.

In our opinion, everyone from Wall Street bankers and investors to grid customers to the Governor should be asking the same question—are power markets in Texas being driven by sound fundamentals... by a frothy financial frenzy to capture upfront subsidies before the door shuts on those giveaways... or being used by data centers in other states to claim they are green? None could be blamed for concluding the answer isn't fundaments.

Are we wrong?

Some of the key takeaways from Doug’s post are:

1. Texas SB6 is expected to prompt large electricity users to seek their own power sources, resulting in the grid losing its economies of scale for power.

2. Microgrids will be particularly important for those who can afford them.

3. I have a real tough time with companies like Meta claiming carbon credits or Tax Credits for Texas's “renewable” energy, which costs the state more, and then they build the data center with jobs and revenue in another state. (Side note- I have banned advertising dollars at my company from being used on Meta platforms for their inability, or lack of desire, to stop child trafficking and other problems.)

4. Subsidies to get the “renewable” wind and solar are paid through the Inflation Reduction Act and other federal programs, and let’s see if the Parlementarian in the Senate can overrule the elected Senators, and remove the language that will effectively remove the subsidies from the Big Beautiful Bill.

5. Therefore, Federal dollars are allocated to installing projects in individual states, and those states charge their consumers based on the deliverables of the power sources. And then tax credits go to those who are already wealthy, and is it just virtue signaling?

Compare the 11 most expensive states for consumer electricity to Florida and Texas. There is a pattern.

Federal Subsidies Negatively Impacted ERCOT Long Term

The federal subsidies have been significant for Texas ERCOT, and they have now incorporated “renewable” wind and solar into the grid, making it almost impossible to remove them.

• Between 2010 and 2023, federal subsidies for wind ($65 billion) and solar ($76 billion) totaled approximately $141 billion nationally, with Texas receiving a significant share due to its dominance in renewable energy.

• Texas’s ~120,000 MW of wind/solar capacity likely received ~$20–30 billion in subsidies (e.g., Production Tax Credit at ~$27.50/MWh for wind, Investment Tax Credit for solar).

• Impact on Consumers: Subsidies lower the costs of renewable projects, thereby reducing wholesale prices. Without subsidies, renewable costs would rise by ~$10–20/MWh, potentially increasing retail rates by ~0.5–1 cent/kWh (assuming 31% renewable share). I think this number is way off, but it's all I could prove with the publicly available numbers.

• However, nobody is discussing the cost of the national debt. That printed money has a price, and it could have been horrific had we not had a change in administrations. Yes, the subsidies lowered the installation costs. Still, those were mostly absorbed for profits, and as the chart above shows, the more green energy policies you have, the higher the costs of electricity and subsequently doing business.

We are now at a point in time where the Green New Deal, which funds much of the “renewable” wind and solar, will be determined by a non-elected official in the Senate holding the position of Parliamentarian.

This weekend will be enjoyable, and let’s see how the Big Beautiful Bill gets dragged across the finish line. Like a corpse, or pushed forward like the President wants.

I anticipate that we will see numerous primaries in the Republican Party, as it appears that the RINOs are aligning with the Democrats.

Take a moment today, and hug your family, friends, and neighbors, and know that even with all of our issues in the United States, this is still the greatest country in the world. Thank you to all of our wonderful readers on Substack and our website.