Chevron Pursues $227M Tax Break in Texas for Microsoft-Backed Data Center Power Plant

Chevron subsidiary Energy Forge One has applied for a state tax abatement in Texas to fund a massive power plant in West Texas, with the electricity earmarked for a data center that could be leased by Microsoft. The application was submitted to the State Comptroller’s board and received a recommendation for approval in late January—the first such approval under the program for a power plant intended solely for data center use.

In March, following reports that Microsoft was exploring power purchases from the Energy Forge project, Chevron confirmed it had entered into an exclusivity agreement with Microsoft and Engine 1, an investment fund involved in the initiative. Microsoft had previously pledged to be a “good neighbor” in communities where it builds data centers, including a commitment to pay a “full and fair share of local property taxes.”

Tax Break Details and Project Scope

The potential tax abatement comes amid growing public scrutiny of data centers and their electricity demands, as well as increased scrutiny of state incentives for such facilities. Some states, including Texas, have spent over $1 billion annually on data center incentives. According to state documents, the Chevron project could result in savings of $227 million or more over 10 years, depending on the project’s final scale and investment.

Chevron spokesperson Paula Beasley clarified in an email that any tax incentives under consideration for the Energy Forge project would apply only to the power generation facility, stating: “All tax incentives under consideration for the Energy Forge project apply solely to the power generation facility to support new energy infrastructure and do not extend to any future data center facilities that may be served.” Beasley also noted that there is currently no definitive agreement with Microsoft for the power plant.

Microsoft’s corporate vice president and general counsel for infrastructure, Rima Alaily, echoed this in a statement: “Microsoft is in discussions with Chevron. No commercial terms have been finalized, and there is no definitive agreement at this time.”

Program Background and School District Impact

Chevron is applying for the tax abatement under Texas’ Jobs, Energy, Technology, and Innovation (JETI) Act, passed in 2023. The program is designed to incentivize large infrastructure projects by capping the amount of taxable property subject to local school district taxes. The Pecos-Barstow-Toyah school board approved the project’s application in February. Importantly, the state funds the tax abatement, meaning the school district does not incur any financial loss.