Data center costs skyrocketing—has Oracle again blown up?

Author: Li Jia, Wall Street Insights

The hidden costs of building AI infrastructure are starting to surface.

On July 18, according to The Information, Oracle’s $16.5 billion AI super-campus project in New Mexico encountered roadblocks from environmental approval, forcing the company to change its power supply plan and driving costs up by several billions of dollars. Meanwhile, the company’s data center project in Wisconsin is also facing additional regulatory compliance spending of more than $100 million. Last week, S&P Global downgraded Oracle’s long-term issuer credit rating to just one notch above investment grade, citing “persistent underestimation” of the scale of its capital expenditures.

A series of events like this reflects the shared challenges the entire tech industry faces when building large-scale AI data centers: environmental resistance, disputes over water resources, tighter regulation, and community permitting costs are repeatedly breaking original financial forecasts.

Power supply方案 forced to shift, costs rise by several billions

Oracle originally planned to build a natural gas power plant for its data center campus codenamed “Project Jupiter.” The project is located in New Mexico near El Paso, a border city in Texas, covering 1,400 acres, with a designed installed capacity of over 2 GW, mainly to serve OpenAI’s computing power needs.

However, the state environmental permitting application for the natural gas power plant has stalled due to concerns about air pollution and greenhouse gas emissions. This April, Oracle instead planned to power the entire campus with Bloom Energy natural gas fuel cells. Fuel cells emit fewer pollutants, have slightly lower carbon emissions, and use almost no water—so they are theoretically more advantageous in terms of environmental approvals.

But this shift comes at a steep price. Analysts estimate that the cost of the fuel cell microgrid with capacity adjusted to 2.45 GW is about $8 billion, which is tens of billions of dollars more expensive than the original natural gas turbines plan. In addition, if the fuel cells are not continuously operated, they will accelerate aging, which would limit Oracle’s flexibility to switch to cheaper solar power when sunlight is abundant.

Environmental resistance has not gone away. Last week, New Mexico issued a second rejection of the proposed fuel delivery pipeline route. The state’s environmental department said it will hold a public hearing on air permits on October 19, citing it encountered “significant opposition.”

New Mexico’s attorney general is investigating complaints from residents, saying their names were used in support letters submitted to regulatory agencies without the individuals’ consent. Local media Source NM noted that, for greenhouse gas emissions from the facility’s fuel cells alone, the amount exceeds the combined reported emissions of two of the state’s largest cities.

In a statement, an Oracle spokesperson said, the company is “moving quickly” with the construction of its AI sites and is “confident in the returns on the deployed capital.” Julia Robin, head of infrastructure planning and procurement at Oracle, published an open letter in the local newspaper, saying the adjustments the company made show that “we are listening and continuously improving the project.”

Regulatory rulings in Wisconsin add more than $100 million in burden

In Wisconsin, Oracle is also facing unexpected compliance costs. Although Oracle, OpenAI, and Microsoft previously pledged to “cover all power-related costs” for their respective AI projects themselves, a recent ruling by the state’s power regulator may still require these companies to pay more.

According to reports, the regulator made a decision on cost-sharing for transmission costs. This may mean that Oracle, OpenAI, and their development partner Vantage Data Centers would have to bear the full construction costs of the transmission lines for their Port Washington data center campus on their own, whereas these companies previously expected that the public would share part of the costs.

In addition, Oracle has filed a lawsuit over another regulatory ruling. The decision requires Oracle to provide financial guarantees in the form of cash or credit limits, citing that its credit rating is lower than that of other tech giants. Oracle said the ruling will add about $100 million in costs per year.