Data Center Costs Soar! Is Oracle Facing Another Setback?

The Implicit Cost of AI infrastructure construction is coming to light.

On July 18, according to a report by The Information, Oracle's $16.5 billion AI super campus project in New Mexico encountered obstacles in environmental approval, forcing a change in its power supply plan and leading to a cost surge of billions of dollars. At the same time, the company's data center project in Wisconsin also faces additional regulatory compliance expenditures of over $100 million. Last week, S&P Global downgraded Oracle's long-term issuer credit rating to just one notch above investment grade, citing a "persistent underestimation" of the scale of its capital expenditures.

This series of events reflects the common dilemma facing the entire tech industry in the large-scale construction of AI data centers: environmental resistance, water resource disputes, tightening regulations, and community permit costs are repeatedly shattering original financial forecasts.

Forced Shift in Power Supply Plan Adds Billions in Costs

Oracle originally planned to build its own natural gas power plant for its data center campus, codenamed "Project Jupiter." Located near El Paso, a city on the border between New Mexico and Texas, the project covers 1,400 acres and has a designed installed capacity of over 2 gigawatts, primarily serving OpenAI's computing power needs.

However, the state environmental permit application for the natural gas power plant stalled due to issues with air pollution and greenhouse gas emissions. In April this year, Oracle shifted its plan to use Bloom Energy natural gas fuel cells to power the entire campus. Fuel cells emit fewer pollutants, have slightly lower carbon emissions, and consume almost no water, theoretically offering advantages in environmental approval.

But this transition comes at a high price. According to analyst estimates, the cost of a fuel cell microgrid with a capacity adjusted to 2.45 gigawatts is approximately $8 billion, which is billions of dollars more expensive than the original natural gas turbine plan. Furthermore, if fuel cells do not run continuously, they age faster, which will limit Oracle's flexibility to switch to cheap solar energy during sunny periods.

Environmental resistance has not dissipated. Last week, New Mexico issued a second veto on the proposed route for the fuel delivery pipeline. The state's environmental department announced that it would hold a public hearing on the air permit on October 19, citing "significant opposition."

The New Mexico Attorney General is investigating resident complaints alleging that their names were used in support letters submitted to regulators without their consent. Local media outlet Source NM pointed out that the greenhouse gas emissions from the facility's fuel cells alone exceed the combined reported emissions of the state's two largest cities.

An Oracle spokesperson stated in a declaration that the company is "moving quickly" on AI site construction and is "confident in the return on deployed capital." Julia Robin, Oracle's Head of Infrastructure Planning and Procurement, published an open letter in a local newspaper, stating that the adjustments made by the company demonstrate that "we are listening and continuously improving the project."

Wisconsin Regulatory Ruling Adds Over $100 Million Burden

In Wisconsin, Oracle is also facing unexpected compliance costs. Although Oracle, OpenAI, and Microsoft had previously promised to "bear all electricity-related costs themselves" for their respective AI projects, recent rulings by the state's electricity regulators may still require these companies to pay more.

According to reports, regulators made a ruling on the allocation of transmission costs, which could mean that Oracle, OpenAI, and their development partner Vantage Data Centers must bear the full construction costs of the transmission lines for their Port Washington data center campus, whereas these companies had previously expected the public to share part of the costs.

In addition, Oracle has filed a lawsuit regarding another regulatory ruling. This ruling requires Oracle to provide financial guarantees in the form of cash or credit lines, citing its relatively lower credit rating compared to other tech giants. Oracle stated that this ruling will impose an additional annual cost of approximately $100 million on the company.