Data center costs are skyrocketing! Has Oracle run into trouble again?

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The hidden costs of AI infrastructure construction are emerging.

On July 18, according to The Information, Oracle’s $16.5 billion AI super campus project in New Mexico encountered environmental approval obstacles and was forced to change its power supply plan, causing costs to surge by several billion dollars. Meanwhile, the company’s data center project in Wisconsin faces additional regulatory compliance costs exceeding $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 its capital expenditures.

This series of events reflects the common predicament faced by the entire tech industry in building large-scale AI data centers: environmental resistance, water resource disputes, tightened regulations, and community permit costs are repeatedly breaking original financial forecasts.

Power supply plan forced to change, costs increase by billions

Oracle originally planned to build a natural gas power plant for its codenamed "Project Jupiter" data center campus. Located near the Texas border city of El Paso in New Mexico, the campus occupies 1,400 acres, is designed for more than 2 gigawatts of installed capacity, and mainly serves OpenAI’s computing needs.

However, the state environmental permit application for the natural gas power plant stalled due to air pollution and greenhouse gas emission issues. In April this year, Oracle decided to use Bloom Energy natural gas fuel cells to power the entire campus. Fuel cells emit fewer pollutants, slightly lower carbon emissions, and hardly consume water, theoretically giving them an advantage in environmental approval.

But this switch comes at a high price. According to analysts, the cost of a fuel cell microgrid adjusted to 2.45 gigawatts is about $8 billion, several billion dollars more than the original natural gas turbine plan. Moreover, fuel cells age faster if not run continuously, restricting Oracle’s flexibility to switch to cheap solar power during sunny periods.

Environmental resistance has not disappeared. Last week, New Mexico issued a second denial for the proposed fuel delivery pipeline route. The state’s environmental department announced a public hearing for the air permit will be held on October 19, citing "significant opposition."

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

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

Wisconsin regulatory ruling adds over $100 million in costs

In Wisconsin, Oracle also faces unexpected compliance costs. Although Oracle, OpenAI, and Microsoft had previously promised to "bear" all power-related costs for their respective AI projects, a recent ruling by the state power regulator could force these companies to pay more.

Reports say the regulator ruled on transmission cost allocation, which may mean Oracle, OpenAI, and their development partner Vantage Data Centers will have to bear the entire transmission line construction costs for the Port Washington data center campus themselves, whereas they previously expected the public to share some costs.

In addition, Oracle has filed a lawsuit against another regulatory decision requiring it to provide financial guarantees in the form of cash or credit lines, citing its credit rating is lower than other tech giants. Oracle says this ruling will add about $100 million in annual costs.

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