Microsoft Bypasses Grid Delays With 2.67GW Gas Plant in Texas

Published by James Harris on June 22, 2026June 22, 2026

Chevron and Microsoft have agreed to build a dedicated natural gas power plant next to Microsoft’s data center campus in Pecos, Texas, under a 20-year deal that could eventually supply up to 2.67 gigawatts of electricity for AI workloads. The project, called Kilby, targets first power by 2028 and ranks among the largest co-located gas installations in the country if it reaches full capacity.

The structure is the more significant detail here. By generating power behind the meter, Chevron and Microsoft bypass the interconnection queue and permitting delays that have become the primary constraint on data center expansion across the United States. Chevron brings its Permian Basin upstream supply chain directly into the equation, with GE Vernova supplying most of the gas turbines and Caterpillar’s Solar Turbines subsidiary adding generation capacity alongside. Engine No. 1, the investment firm best known for its activist push on ExxonMobil’s board, rounds out the development partnership. Microsoft describes the Pecos campus as a multi-billion-dollar commitment expected to add 2 gigawatts of data center capacity over five to seven years, with more than 6,000 construction jobs tied to the build-out.

Natural gas won this contract not because it’s the cleanest option, but because it can be permitted, built, and dispatched faster than nuclear or utility-scale renewables at this scale.

The Kilby deal fits a pattern that has been accelerating for roughly 18 months: Microsoft, Google, and Amazon have each signed unconventional power agreements spanning nuclear, geothermal, and gas as conventional grid capacity falls further behind AI demand. That dynamic is already attracting regulatory attention in other jurisdictions, and how aggressively federal attorneys engage with AI infrastructure emissions disputes will shape whether behind-the-meter gas projects like this one face national scrutiny or remain locally permitted. Chevron’s decision to identify additional co-location sites, even without disclosed locations or timelines, signals it is treating this as a repeatable business line rather than a one-off arrangement. For an oil major navigating energy transition pressure, a 20-year contract with one of the world’s largest technology companies is a more durable revenue argument than almost anything else on its balance sheet.

Chevron has said it is targeting a final investment decision on Project Kilby before the end of 2026, which means the next meaningful checkpoint is whether that decision holds against any permitting challenges or shifts in Microsoft’s capital allocation priorities between now and then.