Microsoft, Chevron, and investment fund Engine No. 1 have signed an exclusivity agreement to negotiate a power generation and electricity offtake arrangement. This deal aims to supply power to a large data center campus in West Texas, which is crucial for Microsoft's rapidly expanding generative AI services like ChatGPT and Copilot. While no definitive agreement or commercial terms have been finalized, the exclusivity period suggests a strong intent to move forward.
The proposed project involves building a natural gas-fired power plant in West Texas, with an estimated cost of about $7 billion. This facility is projected to initially generate 2,500 megawatts of electricity, making it one of the largest of its kind in the US. This power plant would be co-located with the data center campus, a strategy designed to reduce strain on regional electricity systems and ensure a reliable, always-on power supply.
This initiative builds on a previous partnership between Chevron and Engine No. 1, announced last year, to construct natural gas-based power plants next to data centers using turbines from GE Vernova. Chevron has stated its ambition to begin its first natural gas-powered AI data center project in West Texas by 2027. The project also represents a strategic move for Chevron to utilize associated natural gas produced in the Permian Basin, which might otherwise be sold at a discount or flared, and is expected to contribute to its goal of over 10% compound annual free cash flow growth through 2030.
