Microsoft has signed a 20-year power agreement with Chevron for a planned AI data centre in West Texas.
Chevron’s wholly owned subsidiary, Energy Forge One LLC, signed the power purchase agreement with Microsoft. The agreement covers dedicated electricity for a Microsoft-operated data centre through Project Kilby, a co-located power facility and data centre complex.
Chevron is working with Joulent, an energy company launched by investment firm Engine No. 1, to build approximately 2.67GW of generating capacity in Reeves County. The project will use a phased, modular approach to add generation in stages.
The site will cover more than 2,000 acres in the Permian Basin and use natural gas from Chevron’s fields in the area. Chevron said Project Kilby would be among the largest co-located natural gas power and data centre developments in the US.
Most of the electricity is expected to be generated using GE Vernova turbines. Additional capacity will come from Solar Turbines equipment, which is owned by Caterpillar. The power generated at the facility will be delivered directly to a Microsoft-operated data centre.
The companies have not disclosed the estimated cost of Project Kilby. Chevron expects to reach a final investment decision by the end of 2026, subject to remaining approvals and conditions.
Project Kilby will include an on-site gas-fired power plant. According to Chevron, co-locating power generation with the data centre is designed to deliver dispatchable electricity directly to Microsoft while reducing pressure on the regional grid.
The project is expected to connect to the grid later and sell excess electricity into the Texas power market. First power delivery is targeted for 2028, with full build-out expected to continue into the 2030s.
Project Kilby will require additional power equipment and battery storage to support reliability without an initial grid connection. Solar generation could also be added later, according to Joulent.
The facility is planned to use non-potable brackish groundwater rather than freshwater supplies. It will also include selective catalytic reduction systems designed to reduce nitrogen oxide emissions.
Chevron is also working on options to reuse produced water from oil and gas operations. The plant design will include measures to reduce noise and light impacts on surrounding communities.
Project Kilby is expected to generate mid-teen returns and provide cash flows less exposed to oil and gas price volatility, according to Chevron. The company also said the project could generate more than $10 billion in state and local tax revenue and support nearly 2,000 jobs.
Noelle Walsh, Microsoft’s president of cloud operations and innovation, said the company’s AI and cloud growth requires “a new level of coordination between energy and infrastructure.”
Grid access delays
Goldman Sachs said in a May 2026 research note that electricity demand from U.S. data centres is expected to rise from 31GW in 2025 to 66GW in 2027. Grid connection delays have become a concern for new facilities.
Data centre developers face longer waits for grid access. Wait times for electric service have stretched beyond five to seven years in many places. Data centres require reliable electricity supply day and night, according to Reuters Events.
Behind-the-meter power projects are being used as one way to secure electricity more quickly. In these projects, generation is built on or near the data centre site. Data provider Cleanview is tracking 59 data centre projects with planned on-site power generation, representing about 90GW of combined capacity.
Power infrastructure deals
DigitalBridge recently announced a deal valued at up to $1.05 billion to buy power infrastructure investor ArcLight Capital Partners. Google bought renewable energy developer Intersect for $4.75 billion in December.
DigitalBridge develops and operates AI, cloud computing, and telecoms infrastructure. It has $119 billion in assets under management. ArcLight invests in gas-fired power assets, renewables, and battery storage projects, with a focus on late-stage development.
Google’s Intersect deal is tied to its strategy to develop co-located energy parks that combine hyperscale data centres, renewable power generation, and large-scale battery storage.
Rising energy demand and delays to new generation have pushed up the cost of long-term electricity contracts, Reuters Events reported. Brian Boufarah, who leads Deloitte’s energy, resources, and industrials M&A practice, told Reuters Events that digital infrastructure owners are looking to secure power supply and manage related costs because of the effect on profitability.
Sam Chandan, founding director of the Chen Institute for Global Real Estate at NYU Stern School of Business, described power access as “a binding constraint on digital infrastructure expansion.” Capital is moving toward platforms that control both data centre and power infrastructure, he said.
Ownership of both power and data centre development can help accelerate deployment by combining development, grid connection, and permitting expertise, Chandan said. Larger balance sheets can also support new projects, he added.
Data centre developers are expected to keep targeting independent power developers with dispatchable generation, grid connections, mature queue positions, or long-term offtake agreements, Chandan said. Other routes include joint ventures with power developers, co-located power and data centre projects, and long-term electricity purchase agreements.
Deloitte said rising power sector M&A is being driven by investment in digital infrastructure. It said there was nearly $142 billion of M&A activity in the power sector in 2025, higher than the combined transaction value recorded from 2022 through 2024. Recent deals include Blackstone’s $11.5 billion purchase of TXNM Energy and Constellation Energy’s acquisition of Calpine. NextEra Energy and Dominion Energy have also announced a planned $66.8 billion merger.
Exxon Mobil partnered with NextEra Energy late last year to develop a 1.2GW gas-fired power plant. The project could include carbon-capture technology, and talks were then under way with a potential data centre customer.
(Photo by Luis Ramirez)
See also: AI growth and a rethink of data centre power and cooling
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