SpaceX Bets on Natural Gas for Terafab, Overlooking Solar Energy

SpaceX confirmed this week that it will build its own natural gas plants to supply Terafab, its future semiconductor factory in Texas. The noteworthy detail: there is no mention of solar energy in the project, despite Tesla, a solar panel developer, being a partner in the venture.

Riley Trettel, responsible for energy and data center development at SpaceX, stated in a public meeting that the company will "bring its own energy" to the project, including large battery sets. This decision follows a pattern that Elon Musk has been consolidating in his heavy infrastructure ventures.

Natural Gas as the Backbone of Musk's Projects

The choice of natural gas is not exactly new in Musk's orbit. The data centers of xAI in Memphis, SpaceX's artificial intelligence subsidiary, already operate almost exclusively on fossil fuel. Musk also recently acquired a company specializing in natural gas plants, and SpaceX plans to purchase $2.8 billion in gas turbines over the next three years.

It is a curious contradiction for an executive who built part of his reputation on energy transition. Tesla remains one of the largest installers of solar panels in the United States, but in practice, Musk's larger-scale projects are opting for the fossil route. The explanation is less about ideology and more about pragmatism: natural gas offers constant and predictable power, something that large-scale industrial operations and AI data centers require as a basic necessity.

This dynamic between the green narrative and operational reality is something we closely monitor in technology coverage, especially when it involves critical infrastructure for artificial intelligence.

Terafab: The Numbers Behind the Megafactory

Terafab will be built in Grimes County, about 70 kilometers northwest of downtown Houston. The first phase of the project has an estimated cost of $16.8 billion, although previous projections from SpaceX indicated up to $55 billion. The factory will produce chips intended for data centers operated by SpaceX and xAI.

In exchange, the company received generous tax incentives. Grimes County granted a 100% property tax exemption, contingent on a minimum investment of $5 billion by 2030 and the creation of at least 1,800 full-time jobs by 2035. The state of Texas contributed an additional $30 million in incentives.

It is worth noting that SpaceX recently conducted its IPO, raising $87.5 billion. Part of this capital is expected to support the advancement of Terafab and other infrastructure projects of the company. This volume of resources positions SpaceX not only as an aerospace company but as a significant player in the global semiconductor supply chain.

The Environmental Problem No One Wants to Discuss

The choice of the "bring your own energy" model solves two problems at once: it accelerates the construction timeline and avoids pressure on the local power grid, something that could raise prices for residential consumers. But it creates another significant problem.

Natural gas turbines emit significant amounts of pollutants. xAI, SpaceX's subsidiary, is already facing lawsuits for using turbines without environmental licenses in one of the most polluted regions of the United States. This is a regulatory and reputational risk that tends to grow as the scale of projects increases.

The boom in artificial intelligence data centers has intensified this race. Google, Meta, and Microsoft have announced massive projects in recent months, all with colossal energy demands. In Texas alone, more than 70 gigawatts of capacity have already been mapped for data centers under the "bring your own power" model. This demand has raised the construction costs of natural gas plants by 66%, according to industry data, as we detailed in our coverage of the financial impacts of the AI race.

What This Means for the AI and Chip Market

SpaceX's decision reveals something deeper about the current stage of the artificial intelligence race. The demand for computing power has grown so rapidly that energy infrastructure has become the real bottleneck. It is no longer about who has the best AI model, but rather about who can feed it with stable and abundant energy.

Vertical integration is the answer that large tech companies have found. Instead of relying on utilities, they build their own plants. Instead of competing for capacity on the grid, they bring their own generation. It is an industrial logic of the 20th century applied to the hottest problem of the 21st century.

For investors and analysts following the sector, the signal is clear: companies willing to solve the energy problem will have a real competitive advantage in the next decade. The scale of investment from big tech in AI infrastructure already exceeds hundreds of billions of dollars per year, and the energy component could determine who wins this race.

While Musk's public discourse remains associated with clean energy, his most ambitious projects are literally powered by fossil fuel. The question remains whether this contradiction will be sustainable as regulatory and environmental pressures on data centers intensify in the coming years.