Microsoft and Chevron strike 20-year deal for Texas gas power plant

Microsoft and Chevron have locked in a 20-year power purchase agreement that will feed a new natural-gas-fired plant in West Texas directly into Microsoft’s data center campus in Pecos, a deal that puts AI’s electricity appetite at the center of a national energy-policy fight. Project Kilby is being developed by Energy Forge One LLC, a wholly owned Chevron subsidiary working with Engine No. 1, and Chevron said the phased buildout is designed to deliver about 2.67 gigawatts of capacity, with first power targeted for 2028 and a final investment decision due by the end of 2026.

The campus in Reeves County is expected to expand by about 2 gigawatts, a scale that shows why major cloud and AI operators are chasing long-term sources of firm power. Estimates have put the project’s price tag at roughly $7 billion, while one local business report said it could generate more than $10 billion in tax revenue and nearly 2,000 jobs. Microsoft’s broader data-center buildout was also said to support more than 6,000 construction jobs and hundreds of permanent operational positions, turning the project into an economic engine as well as an energy one.

Chevron said the plant is meant to provide reliable, dispatchable electricity directly to Microsoft while easing pressure on the regional grid, and it suggested excess power could eventually flow into the grid to help stabilize it. That framing fits a broader strategy in which data-center developers are seeking dedicated power supplies rather than waiting for the existing grid to catch up with AI demand. For Chevron, the deal also offers a more resilient cash-flow stream less exposed to oil and gas price swings.

The agreement, however, sharpens the contradiction between Microsoft’s climate messaging and its power strategy. Stand.earth said recent methane-gas AI projects could lift Microsoft’s data-center carbon footprint by 160 percent, to about 25.25 million metric tons of carbon-dioxide equivalent by 2028, and the group said more than 50 organizations have signed an open letter criticizing the company’s climate direction. Microsoft has also been investing in nuclear power, including support for the restart of the Three Mile Island plant in Pennsylvania, underscoring how aggressively it is pursuing firm electricity for expansion.

Chevron and Engine No. 1 had already moved into this market earlier, announcing a partnership in March 2025 to develop scalable power solutions for U.S. data centers using U.S. natural gas. Chevron later selected West Texas in November 2025 as the site of its first natural-gas-fired power project for a data center. Project Kilby now turns that plan into one of the clearest examples yet of how AI growth is reshaping U.S. energy policy around long-lived fossil infrastructure.