Summary: Microsoft announced a new Pecos, Texas campus on June 22, 2026, adding roughly 2 GW of capacity. Chevron subsidiary Energy Forge One signed a 20-year power purchase agreement to supply the site from Project Kilby, a roughly 2.67GW behind-the-meter natural gas plant whose first power is planned for 2028. The article says grid interconnection delays pushed hyperscalers toward self-supplied power.
Microsoft has picked the small West Texas town of Pecos for a brand-new data center campus, announcing on June 22, 2026 a single addition of roughly 2 gigawatts of capacity. Chevron’s official release landed the same day: Energy Forge One, its wholly owned subsidiary, has signed with Microsoft a power purchase agreement (PPA) running 20 years to feed the site. Out at the edge of the Permian Basin, a large-scale experiment is now taking shape — power plant and data hall built as one.
2 Gigawatts in One Go: A Record-Scale Addition for Microsoft
Pecos belongs to Reeves County, near the New Mexico border in West Texas — hardly a classic data center market. On the company blog, Noelle Walsh, Microsoft’s president for Cloud Operations and Innovation, called the project “one of the largest single capacity additions in our history,” a response to customers’ strong and sustained demand for AI and cloud services. That multibillion-dollar commitment stretches across five to seven years, will keep more than 6,000 construction jobs busy at peak build-out, and brings several hundred permanent operational roles. The company adds that the pull isn’t limited to startups: healthcare providers, governments, and educational institutions are modernizing critical systems.
Chevron’s Project Kilby: A Gas Plant Wired Behind the Meter
Power is the true lead actor in this deal. Project Kilby, developed by Chevron together with hedge fund Engine No. 1, puts a natural gas plant of roughly 2.67GW right next to the Microsoft campus, selling “behind-the-meter” electricity through a 20-year PPA — its output never touches the public grid, running straight into the data halls. Large GE Vernova turbines carry the main generation load, topped up by units from Solar Turbines, a subsidiary of Caterpillar, with the build advancing phase by phase, in modular steps. First power is on the calendar for 2028; Chevron wants a final investment decision (FID) in hand by the end of 2026 and is targeting mid-teen returns.
The groundwork began more than a year earlier. In January 2025, Chevron and Engine No. 1 laid out plans for as much as 4GW of data center power capacity; November 2025 brought the choice of West Texas for the first plant; and April 2026 saw Microsoft enter an exclusivity agreement with the pair, framing the contract announced this week.
How Behind-the-Meter Power Went Mainstream
The blunt answer: interconnection queues move too slowly. Years can slip by before a large load gets its grid hookup; the AI capacity race runs on a clock of months. Chevron’s president of New Energies, Jeff Gustavson, makes the case that drawing on Permian natural gas nearby lets the company supply power “with certainty, speed and at a competitive cost”. Microsoft is more direct — it is Microsoft paying for the energy infrastructure, because “our growth strengthens, rather than strains, the energy resources the community relies on.”
West Texas keeps collecting these projects. August 2025 saw Pacific Energy lay out a 5GW off-grid power project for neighboring Pecos County, and Microsoft itself in March 2026 leased roughly 700MW at Crusoe’s Abilene campus. Once interconnection is the choke point, sourcing your own gas and making your own electricity is simply the rational hyperscaler play.
Commitments on Water and the Local Community
Electricity draws the arguments, but in arid West Texas water is touchier still. Per Chevron, the plant will run on non-potable, brackish groundwater instead of freshwater, and the company is pressing ahead with ways to reuse the water produced by oil and gas operations. Selective Catalytic Reduction systems built into the design will cut NOx emissions, with noise and light controls layered on top. Chevron’s projection: state and local tax revenue above $10 billion, and nearly 2,000 jobs supported. Microsoft, meanwhile, puts its own “Community First” stamp on the project, pledging to act as a lasting partner in the area rather than a passer-by.
The Read-Through for Cloud Capacity
Three takeaways. First, the constraint that now binds cloud expansion is power, not chips — and by covering the plant’s cost itself, Microsoft is effectively pulling supply certainty in-house. Second, behind-the-meter gas has graduated from a fringe tactic into a mainstream instrument, with years of consequences ahead for load shapes and pricing in ERCOT-type grids. Third, when a single 2GW campus won’t deliver first power until 2028, the message is that commitments being made in this capacity race now run past the five-year mark — cloud scarcity is not letting up any time soon.
Sources
- Powering the next wave of AI: Expanding capacity with our new datacenter in Pecos — Microsoft Official Blog
- Chevron signs 20-year power agreement with Microsoft for West Texas data center — Chevron Newsroom
- Microsoft plans 2GW data center campus in Pecos, Texas — DCD
- Chevron signs 20-year natural gas deal with Microsoft for AI data center — Quartz