Bad for ↓
Democrats won Congress and the Texas governorship, and the new Texas governor promised to halt new data centers. Fewer new data centers means less new power demand. That hurts Texas power generators Vistra and NRG Energy.
Source: Investing.com ↗
When politicians move to stop a fast-growing kind of customer, the companies that built their growth plans around selling to that customer can lose too.
Democrats took both the House and Senate in the November 3 midterms. On November 4, clean-energy shares such as First Solar (FSLR) and NextEra Energy (NEE) rose, and Lockheed Martin (LMT) fell on expectations of slower growth in military spending. The election also reaches the companies that sell electricity. Texas elected Gina Hinojosa governor on a promise to halt new data centers and end their tax breaks. Texas holds more than a quarter of the data center capacity planned in the US by 2030. Texas generators Vistra (VST) and NRG Energy (NRG) sell into that demand. How much of each company's sales depends on data centers is not yet known.
Vistra fell 13.1% and NRG fell 11.6% on November 4. Clean-energy shares rose, with First Solar up 8.8%.
Why that may be wrong
The election enacted nothing, and Hinojosa takes office in January. Governor Greg Abbott had already announced his own data center moratorium and backed tighter power and water rules before the vote. Part of the Texas risk was therefore public before November 4. The one-day drops of 11% to 13% may have priced in more than the change of governor adds.
Republicans have held the Texas Railroad Commission majority, and a governor alone cannot impose a moratorium. If moratorium bills stall in the Texas legislature over the coming months, or Hinojosa's first proposals after taking office in January are softer than her pledges, the threat to these companies' demand would fade.
Even if many Texas data centers are blocked, demand for power may still outgrow what the grid can supply. In that case Vistra and NRG could still sell all the power they make at strong prices. A moratorium also needs the Texas legislature to agree, and the existing plants and contracts that drive near-term earnings would be little affected.
Texas elected Gina Hinojosa, who promised a moratorium on new data centers, tighter water and power rules, and an end to their tax breaks. Democrats also won governorships in states such as Ohio and Georgia, where analysts expect tighter permitting. So the people who approve new data centers changed in states where much building was planned.
Data centers use huge amounts of electricity, and they were a main reason power companies expected demand to grow. If new data centers are paused or lose their tax breaks, fewer get built, which means much of that expected demand never shows up. That leaves less power to sell than planned.
Vistra and NRG run power plants in Texas, so they earn more when demand outgrows supply. It is like a restaurant that hired extra cooks for a long reservation list, and then the city stops new bookings. That is why curbs on Texas data centers weigh on both companies.
No comments yet.
Sign in to comment
Earlier connections in the same sector that share a theme with this one.