Microsoft Plans 2GW Texas Data Center With On-Site Gas Plant Amid Climate Risk Concerns

Microsoft is constructing a 2-gigawatt data center campus in Pecos, Texas, one of the largest single capacity additions in its history, and will power it with a dedicated natural gas plant to avoid relying on the electric grid. The project, announced via an open letter, promises stable power prices and minimal water use, but it has drawn scrutiny from local communities and environmental groups.

According to a recent TechRadar Pro study, nearly 80% of data centers are built in regions classified as natural disaster zones, including areas prone to hurricanes, wildfires, and floods. The same report notes that data centers both contribute to and suffer from climate change, consuming massive amounts of electricity and water while facing increasing physical risks.

Power and Water Tradeoffs in Hyperscale Expansion

Microsoft’s Pecos campus will draw on a long-term energy supply agreement with Chevron. The on-site gas plant is designed to insulate operations from grid congestion and price volatility, a strategy that mirrors moves by other hyperscalers in energy-constrained markets. However, the reliance on fossil fuels undermines Microsoft’s stated goal of being carbon negative by 2030.

• Microsoft’s campus is slated for Pecos, Texas, a semi-arid region with limited water resources.
• Nvidia recently announced a 100% reduction in water use for its new data center design, using direct-to-chip liquid cooling and air cooling.
• Local opposition has killed dozens of data center projects across the US, according to Microsoft’s own open letter.

Climate Risk and the Industry Response

The convergence of record heat, drought, and wildfire in Texas is raising questions about long-term viability. Data centers already account for roughly 1% of global electricity demand, a figure projected to rise sharply with AI workloads. Nvidia’s waterless design, while still requiring substantial power, represents an incremental step toward reducing environmental impact. In the UK, Kao Data CEO Spencer Lamb told Data Center Dynamics that the next Prime Minister must address planning and power availability to keep the sector competitive.

Microsoft has not disclosed a construction timeline for Pecos. The company says it will use minimal water in cooling, though details remain sparse. The broader industry faces a fundamental tension: hyperscale expansion is accelerating to meet AI demand, but every new campus locks in decades of energy and water consumption at a time when both are becoming scarcer.