AI Data Center Boom Tests Buildout Limits, Power Supply

Andrew Gilbert, Partner at Energy Capital Partners, discusses AI data center buildout and the cost of electricity, as well as how the war in Iran is affecting US energy prices.

Texas is emerging as a test case for how US policymakers manage the collision of artificial intelligence growth, tariffs reshaping manufacturing, and supply chain risks tied to China.

At a policy panel this week in Austin, lawmakers and industry participants warned that the scale of change—particularly from AI—could strain infrastructure, raise costs, and force new policy tradeoffs that extend beyond the state.

Shon Hiatt, an associate professor at the University of Southern California, said data centers already under construction across the US could require more than 75 gigawatts of power within the next two and a half years—roughly equivalent to adding another Texas-sized electricity load.

“It’s almost as if we have to create another state,” Hiatt said.

The surge is putting Texas, already the nation’s largest energy consumer, at the center of the response.

State leaders say they are trying to balance that demand with reliability concerns lingering after the state’s 2021 grid failure.

State Sen. Tan Parker, a Republican who co-chaired Texas’s AI task force, said lawmakers are prioritizing “dispatchable” energy—particularly natural gas—to ensure the grid can handle large, continuous loads from data centers.

“When it’s freezing or when it’s 100 degrees in Texas, we need dispatchable energy sources, and there’s nothing like natural gas,” Parker said.

At the same time, officials are trying to manage how quickly large energy users connect to the grid, aiming to prevent demand from outpacing supply. Supply Chains

The buildout is exposing deeper vulnerabilities in the energy supply chain.

Parker said the US remains heavily reliant on foreign manufacturers—particularly China—for critical grid components like high-voltage transformers, creating both economic and national security risks.

“We are wholly dependent, by and large, on China,” he said.

He argued that reshoring production of those components should be a national priority, similar to recent efforts to bring semiconductor and rare earth manufacturing back to the US.

That push is intersecting with broader shifts in trade policy.

Hiatt said tariffs and pandemic-era disruptions are already driving some manufacturers to shift production back to the US, with smaller domestic suppliers seeing increased demand.

But those gains come with tradeoffs. Tariffs are also raising the cost of inputs such as metals and copper, putting pressure on industries operating on thin margins.

Manufacturing “runs on a very small and delicate margin,” Parker said, warning that higher costs can determine whether facilities remain viable.

That creates a growing tension: AI infrastructure can absorb higher electricity prices, while manufacturers often can’t. Economic Tradeoffs

Those competing pressures are beginning to show up in the labor market. Hiatt said some sectors are already pulling back on entry-level hiring, particularly in fields such as consulting and software development.

“There is a little bit of a negative effect for incoming college graduates,” he said.

Others said AI could boost productivity and create new demand in areas tied to infrastructure and construction.

“You’re going to see trades being revitalized,” said state Rep. Keith Bell, a Republican who works as an electrical contractor.

For Texas, the stakes are high.

The state’s energy resources, business climate, and population growth have made it a magnet for both data centers and manufacturing investment. But the scale of demand—from power generation to water to transmission—means policymakers are increasingly being forced to choose between competing priorities.

“We have to be careful that we stay ahead of the infrastructure,” Bell said.

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