Microsoft has entered into a 20-year electricity supply deal with Chevron to support a future AI data centre in West Texas.
The agreement was formalized between Microsoft and Energy Forge One LLC, a fully owned subsidiary of Chevron. Under the terms, electricity will be supplied exclusively to a Microsoft-run data centre via Project Kilby—a combined power generation and data centre site.
Chevron is partnering with Joulent, an energy startup backed by investment firm Engine No. 1, to develop roughly 2.67 gigawatts of power capacity in Reeves County. The initiative will follow a step-by-step, modular design, adding generation capacity incrementally.
Spanning over 2,000 acres in the Permian Basin, the facility will rely on natural gas sourced from Chevron’s local operations. According to Chevron, Project Kilby will rank among the largest integrated natural gas-powered data centre projects in the United States.
The bulk of the electricity will be produced using turbines from GE Vernova, with supplementary output from Solar Turbines—equipment manufactured by Caterpillar. All generated power will be routed directly to the Microsoft-operated data centre.
Financial details of Project Kilby remain undisclosed. Chevron anticipates making a final investment decision by late 2026, pending regulatory approvals and other prerequisites.
A key feature of the project is an on-site natural gas power plant. Chevron explains that placing generation next to the data centre ensures reliable, on-demand power for Microsoft while easing strain on the broader regional electricity grid.
Eventually, the site is expected to link to the main grid and sell surplus electricity into the Texas energy market. Initial power delivery is slated for 2028, with full development continuing through the 2030s.
To maintain reliability before grid connection, Project Kilby will incorporate backup power systems and battery storage. Joulent has indicated that solar energy may also be integrated at a later stage.
Rather than using freshwater, the facility will draw on non-potable brackish groundwater. It will also employ selective catalytic reduction technology to minimize nitrogen oxide emissions.
Chevron is exploring ways to repurpose produced water from its oil and gas operations. The plant’s design will also include features to limit noise and light pollution for nearby communities.
Chevron projects that Project Kilby will deliver returns in the mid-teens and generate stable cash flows less sensitive to fluctuations in oil and gas prices. The company estimates the initiative could yield over $10 billion in state and local tax revenue and create close to 2,000 jobs.
Noelle Walsh, Microsoft’s president of cloud operations and innovation, emphasized that the company’s expanding AI and cloud services demand “a new level of coordination between energy and infrastructure.”
Grid access delays
According to a May 2026 report from Goldman Sachs, U.S. data centre electricity demand is projected to surge from 31GW in 2025 to 66GW by 2027. Delays in securing grid connections have emerged as a major hurdle for new developments.
Developers are facing increasingly long wait times to connect to the grid—often exceeding five to seven years in many regions. As noted by Reuters Events, data centres require uninterrupted, 24/7 power availability.
One solution gaining traction is behind-the-meter power, where generation is built directly on or adjacent to the data centre. Data firm Cleanview reports tracking 59 such projects with on-site generation plans, totaling approximately 90GW of capacity.
Power infrastructure deals
DigitalBridge recently revealed a deal worth up to $1.05 billion to acquire ArcLight Capital Partners, a power infrastructure investor. In December, Google purchased renewable energy developer Intersect for $4.75 billion.
DigitalBridge specializes in AI, cloud computing, and telecom infrastructure, managing $119 billion in assets. ArcLight focuses on late-stage investments in gas-fired power, renewables, and battery storage.
Google’s acquisition of Intersect aligns with its strategy to build integrated energy parks that combine large-scale data centres, renewable generation, and extensive battery storage.
Reuters Events reports that surging energy demand and delays in new power projects have driven up prices for long-term electricity contracts. Brian Boufarah, head of Deloitte’s energy, resources, and industrials M&A practice, noted that digital infrastructure firms are actively seeking to lock in power supplies and control costs to protect profitability.
Sam Chandan, founding director of the Chen Institute for Global Real Estate at NYU Stern School of Business, called power access “a binding constraint on digital infrastructure expansion.” He observed that capital is increasingly flowing toward platforms that own both data centre and energy assets.
Chandan explained that combining power and data centre development can speed up deployment by unifying expertise in construction, grid integration, and permitting. Larger corporate balance sheets also provide stronger financial backing for such ventures.
He added that data centre developers will likely continue pursuing partnerships with independent power producers—especially those with dispatchable generation, established grid connections, favorable queue positions, or long-term power purchase agreements. Other strategies include joint ventures, co-located energy-data centre projects, and extended electricity contracts.
Deloitte attributes the rise in power sector mergers and acquisitions to growing investment in digital infrastructure. The firm reported nearly $142 billion in power sector M&A activity in 2025—surpassing the total transaction value from 2022 to 2024 combined. Notable recent deals include Blackstone’s $11.5 billion acquisition of TXNM Energy, Constellation Energy’s purchase of Calpine, and the planned $66.8 billion merger between NextEra Energy and Dominion Energy.
Late last year, Exxon Mobil teamed up with NextEra Energy to develop a 1.2GW gas-fired power plant, potentially equipped with carbon-capture technology. At the time, discussions were ongoing with a prospective data centre client.
(Photo by Luis Ramirez)
See also: AI growth and a rethink of data centre power and cooling
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