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3 things to know about the IRA that impact Houston's energy sector

Here are three things to know about how the Inflation Reduction Act is driving a clear tech industrial revolution. Photo via energy.gov

In August of 2022, President Joe Biden signed into law the Inflation Reduction Act which aims to mitigate inflation by reducing the federal government budget deficit and lowering prescription drug prices. Through federal funding and a combination of grants, loans, rebates, incentives and other investments, the IRA also will impact domestic energy production while bolstering efforts for an energy-abundant, low-carbon future.

At the bill’s one-year anniversary, Mitsubishi Heavy Industries America held a panel of leaders across multiple sectors — energy, finance, industry and academia — to discuss the IRA and what it means for the future of business and industries.

Here are three things to know about how the Inflation Reduction Act is driving a clear tech industrial revolution, according to Mitsubishi Heavy Industries:

1. IRA Encourages Private-Sector Investment

Since being passed into law by President Biden in August of 2022, the IRA’s first year yielded:

  • Companies have announced 96 gigawatts of new clean power over the previous eight months, enough to power almost 20 million homes – about one-seventh the total number of homes in the U.S.
  • Companies have announced enough new U.S. battery manufacturing projects to support production of more than 10 million EVs per year – more vehicles than were manufactured in the U.S. in 2021.
  • The IRA’s expected impact on private investment has increased between 50 percent and 200 percent from initial estimates, based on research from the Brookings Institution and Rhodium Group, with the largest jumps related to hydrogen, carbon capture, energy storage and critical minerals.

2. A strong focus on environmental justice

According to a fact sheet issued by the White House, the IRA will: reduce pollution; improve clean transit; make clean energy more affordable and accessible; and strengthen resilience to climate change. With a simple mission to accelerate the energy transition with incentives rather than penalties, the act will allocate nearly $400 billion to efforts to reach a low-carbon, energy abundant future including:

  • More than 40 percent of the $27 billion Greenhouse Gas Reduction Fund ($10.8 billion) will benefit low-income and disadvantaged communities.
  • $3 billion for states, tribes, municipalities and community-based nonprofit organizations for environmental justice and climate justice block grants. Eligible activities include mitigating climate risks from heat islands and wood heater emissions, and reducing indoor air pollution; climate resiliency; and facilitating engagement of disadvantaged communities.
  • $3 billion to reduce air pollution and emissions at ports via the installation of zero-emissions equipment and technology.
  • $37.5 million in grants to monitor and reduce air pollution and greenhouse gas emissions at schools in low-income and disadvantaged communities along with another $12.5 million to provide technical assistance to help schools address environmental issues.
  • $33 million to the Council on Environmental Quality to collect data and track disproportionate impacts of pollution and climate change on environmental justice communities in addition to $3 million in grants to deploy, integrate and operate air quality sensors in low-income and disadvantaged communities

3. Collaboration reimagined

As the race to net zero continues, tech giants and energy leaders across all sectors ––corporations, governments, nonprofits and academia –– have come together for one common goal: develop solutions to tackle the world’s toughest energy issues. When it comes to progressing the IRA, industry and Mitsubishi President and CEO Takajiro Ishikawa weighed in on collaboration for the act noting that “The energy transition can’t be done by just one party. Collaboration and communication between all parties is key.”

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This article originally ran on the Greater Houston Partnership's Houston Energy Transition Initiative blog. HETI exists to support Houston's future as an energy leader. For more information about the Houston Energy Transition Initiative, EnergyCapitalHTX's presenting sponsor, visit htxenergytransition.org.

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A View From HETI

Texas has also officially claimed the No. 1 spot in the U.S. for existing and under-construction data center capacity, according to the report. Photo courtesy JLL

Houston stands to benefit from constraints dogging data center markets elsewhere in Texas, a new report indicates. This comes against the backdrop of Texas surpassing Virginia as the country’s top state for data centers — and amid deepening opposition to these facilities.

The report, published by commercial real estate services provider JLL, foresees Houston continuing to gain traction in data center development as occupants seek “scalable alternatives” to Texas markets experiencing supply-and-demand imbalances.

The Houston area currently hosts data centers with 287 megawatts of capacity, well below capacity levels in the Dallas-Fort Worth, Austin-San Antonio and West Texas markets.

However, the region is witnessing a spike in capacity, with 390 megawatts of capacity under construction, according to the report. Counting newly built data centers, Houston would be home to 677 megawatts of data center capacity, an 80 percent increase from the current inventory, the report says.

Developers target West Houston for large-scale data centers

Developers increasingly are evaluating West Houston and surrounding areas for large-scale campuses capable of supporting behind-the-meter power, according to the report. Data center development in the region is likely to remain concentrated in those areas, where power is readily accessible and flood risks are lower, the report adds.

The report notes that Houston is evolving from a traditionally enterprise-focused co-location market for data centers into a “credible large-scale growth market,” buoyed by rising interest in hyperscale facilities and increased development activity.

Corporate, energy and healthcare users are still active in Houston’s data center market, the report says, with cloud computing and technology tenants making inroads. The Houston market absorbed 25 megawatts of data center capacity in the first half of this year.

Texas crowned No. 1 state market for data center capacity

The growth of Houston’s data center sector is occurring in tandem with Texas’ ascent as a data center market. The report shows Texas now boasts 26 gigawatts of existing and under-construction capacity, followed by Virginia at 13 gigawatts.

JLL declares that “Texas has cemented its position as the state for data centers.”

The “frontier” markets of West Texas, the Carolinas, Louisiana, and Ohio account for 77 percent of all capacity being developed nationwide, according to the report.

As evidence of Texas’ heightened stature in the data center sector, commercial real estate services provider Cushman & Wakefield recently ranked Dallas as the world’s No. 1 primary data center market, while Austin-San Antonio led the list of second-tier markets and West Texas topped the third-tier ranking.

These rankings underscore “Texas’ growing importance as a large-scale AI infrastructure hub,” Cushman & Wakefield says.

Opposition to new data centers in Texas grows

While businesses see the value of adding data centers in Texas, the state’s data center boom is rattling residents and politicians alike.

A recent University of Houston survey finds that although 85 percent of Houston-area residents use AI—a key driver of data center growth—nearly 63 percent oppose construction of a data center within a mile of their home. Experts estimate 6.5 gigawatts of capacity, or roughly one-fifth of the total U.S. pipeline, will join the Texas power grid by 2030, with Houston serving as a main hub.

A poll taken recently by the University of Texas/Texas Politics Project yielded similar results: 56 percent of Texans oppose development of data centers in their community.

“Texas’ grid is already facing pressure from population growth, extreme weather and rising industrial demand,” UH researcher Soran Mohtadi says. “When residents say they are concerned about data centers, they’re mostly referring to grid reliability and affordability.”

Data center backlash prompts action by politicians

Responding to Texans’ concerns over power and water consumption, Gov. Greg Abbott recently imposed a moratorium on new data centers in the state to allow time for regulatory agencies to assess the projects’ impact. Meanwhile, some state lawmakers are calling for a crackdown on data center development.

Last month, a state legislative committee chaired by Sen. Joan Huffman, a Houston Republican, held a hearing on the effects of state sales tax exemptions given to data centers. The cost of these exemptions has climbed from an estimated $14.6 million in 2014-15 to a projected $3.3 billion in 2028-29, according to law firm Holland & Knight.

Two backers of massive data centers in Texas, social media giant Meta Platforms and AI powerhouse OpenAI, agreed this week to comply with Abbott’s recently issued standards regarding data center projects—and more have followed suit.

Dan Diorio, executive vice president of state policy and government affairs for the industry-backed Data Center Coalition, fears backlash against data centers may curb economic growth in Texas.

“I worry that communities that put moratoriums ultimately create too much uncertainty and unpredictability, and what that ultimately means is that those communities may shut themselves off to data center development but also may shut themselves off to broader economic development,” Diorio told Fox 7 News in Austin.

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