Chevron, Microsoft Sign 20-Year Deal for 2.67 GW Off-Grid Gas Plant

AI Energy Demand Data Centers News
Marin Holt
June 22, 2026
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Plant capacity: 2.67 GW
Agreement term: 20 years
Project cost: $7 billion
First power: 2028
Location: Pecos, Reeves County, TX

Chevron and Microsoft signed a 20-year power agreement on June 22 for Project Kilby, a 2.67-gigawatt natural gas plant near Pecos in Reeves County, West Texas, that will deliver dedicated, off-grid electricity to a Microsoft artificial-intelligence data center. Chevron expects a final investment decision by the end of 2026, with first power targeted for 2028. The roughly $7 billion project will run on GE Vernova and Solar Turbines equipment fed by Permian Basin natural gas.

The plant is built to run independently of the Texas grid, supplying Microsoft directly rather than drawing on ERCOT. That structure sidesteps the multi-year interconnection queues now slowing large data center projects and keeps the new generation off the shared transmission system that ratepayers fund. Chevron has ordered seven large GE Vernova turbines, supplemented by equipment from Caterpillar subsidiary Solar Turbines.

Chevron is developing the project with investment fund Engine No. 1, which holds an option to fund half of it. The company says the plant will use brackish groundwater rather than freshwater and selective catalytic reduction to limit nitrogen-oxide emissions. Chevron projects more than $10 billion in state and local tax revenue over the plant’s life and roughly 2,000 supported jobs.

For Microsoft, the deal marks a shift. The company had leaned on renewable power and, more recently, nuclear; a long-term natural gas contract signals how directly AI computing demand is reshaping corporate energy procurement.

What 2.67 Gigawatts Off-Grid Buys

The scale is its own story. At roughly $7 billion for 2.67 gigawatts, Project Kilby pencils out near $2,600 per kilowatt of installed capacity, and it dedicates the output of what amounts to a mid-size nuclear station to a single computing campus. Building it off-grid removes that 2.67 gigawatts from the ERCOT interconnection queue entirely, the same queue Chevron is structuring the plant to skip; the trade is that Microsoft now carries the fuel and construction risk a utility would otherwise spread across ratepayers. Chevron’s final investment decision is not due until the end of 2026, and first power is not promised before 2028, so the capacity is a commitment rather than a delivery. Whether brackish-water cooling and selective catalytic reduction hold the plant to the emissions and water footprint Chevron projects will not be testable until the turbines run.

Critical Perspective

Project Kilby commits Microsoft to a 20-year offtake from a 2.67 GW gas plant it does not own, yet Chevron’s final investment decision is not due until the end of 2026 and first power is not promised before 2028, so the headline capacity is a contract rather than a delivered megawatt. The off-grid design keeps all 2.67 GW out of the ERCOT interconnection queue, but it also shifts the fuel-price and construction risk a regulated utility would normally spread across ratepayers squarely onto a single tech buyer. Only two years ago Microsoft signed a 20-year deal with Constellation to restart the Three Mile Island nuclear unit for about 835 MW of carbon-free power, so committing to roughly three times that figure in natural gas marks a sharp reversal of the clean-energy procurement it had publicized. At about $7 billion for 2.67 GW, or near $2,600 per kilowatt, who absorbs the cost overruns and gas-price swings across two decades if AI compute demand at the site shifts before the turbines even start in 2028?

Why It Matters

Behind-the-meter gas plants like Project Kilby let hyperscalers secure firm power on their own timeline instead of waiting years for grid interconnection, and they shift the cost of new generation onto the tech buyer rather than the broader ratepayer base. The trade-off is emissions: a 2.67-gigawatt gas plant locks in two decades of fossil generation at a time when Microsoft and its peers face pressure to align AI growth with climate targets. Expect more dedicated gas-for-data-center deals in the Permian and other gas-rich basins as AI load outpaces what congested grids add.