Chevron subsidiary seeks state tax abatement for West Texas data centre power plant

Chevron subsidiary Energy Forge One has filed an application with the Texas State Comptroller's board to secure a significant tax abatement for a new natural gas power plant in West Texas. The facility is designed exclusively to supply electricity for direct consumption by a data centre, rather than connecting to the public grid. While the Pecos-Barstow-Toyah school board approved the application in February, the financial incentive is funded by the State of Texas, meaning the local district does not bear the cost.

The proposed project could save the company over $227 million in property taxes over a 10-year period. Chevron is applying under the Jobs, Energy, Technology, and Innovation (JETI) Act, a 2023 program intended to incentivise large infrastructure projects in exchange for job and revenue guarantees. The application notes that the site is one of six across the US under consideration for the project, arguing that without the tax incentive, Texas would lose the opportunity to attract billions in new tax revenues.

Microsoft has been identified as a potential tenant for the facility, with Chevron stating that it has entered an exclusivity agreement with the tech giant and an associated investment fund. However, corporate vice president and general counsel for infrastructure at Microsoft confirmed that while discussions are ongoing, there is no definitive agreement and no finalised commercial terms at this time. This lack of a signed deal contrasts with Chevron's earlier claims regarding the exclusivity arrangement.

Critics have highlighted the environmental implications of the project, noting that the plant could emit more than 11.5 million tonnes of CO2 annually. This figure exceeds the total emissions of Jamaica in 2024. The application claims the plant will provide over 25 permanent, full-time jobs, though this is not a mandatory requirement for electricity generation facilities under the current rules. Chevron maintains the plant is being designed to comply with all applicable federal and state air quality standards.

The move comes as Texas lawmakers review data centre incentives and Microsoft pledges to pay a full and fair share of local taxes. However, experts note that tax abatements differ from tax rates, and Microsoft's recent pledges do not explicitly address the use of tax abatements. A report from Good Jobs First found that several states, including Texas, are losing more than $1 billion in revenue each year from data centre sales tax abatements.

While the JETI program significantly curbs the problems of an earlier, less overseen version, some analysts suggest the guardrails for a project like Chevron's remain relatively low. As behind-the-meter gas plants become increasingly popular for data centre developers facing long grid connection waits, the practice of seeking tax abatements for these specific facilities remains a subject of scrutiny.