The quick read: A lender financing a data center checks deliverable power first and water second, because a site without both is worth little more than the land under it. Power means a documented interconnection position, a clear answer on who pays for the grid work, site control over the mortgaged parcel, and any on-site generation. Water means a proven source, a cooling design that fits it, and local approvals. Texas has put much of that file in writing through Senate Bill 6, passed in 2025, and three 2026 directives from Governor Greg Abbott that tie grid approval and state permits to reporting on electricity, water and community impacts.
For the market backdrop, see our data center market overview. Lenders set their own lists; this guide covers the mechanics and the public rules behind them.
What power evidence does a lender ask for before financing a data center?
Before financing a data center, a lender asks for proof that the utility can deliver the contracted megawatts on a stated date and that the project holds a real interconnection position, with study fees paid and security posted. Site control has to match the mortgaged land, because power, not the shell, gives the collateral its value.
The scale explains the scrutiny. The U.S. Department of Energy reported on December 20, 2024, announcing a Lawrence Berkeley National Laboratory report, that data centers consumed about 4.4% of total U.S. electricity in 2023, and that their use climbed from 58 TWh in 2014 to 176 TWh in 2023. CRE Daily, citing Bisnow, reported on October 15, 2026 that 79% of the 72 members of the 2026 Site Selectors Guild ranked power access a top influence this year, and more than half said inadequate supply alone can strike a location off the list.
The power file has five parts:
- A written utility commitment stating the megawatts and the energization date
- The interconnection study record: studies complete, studies pending, fees paid
- The financial commitment posted with the utility, its form and its refund terms
- The deed or lease that gives the borrower site control over the parcel the lender will hold
- Any on-site generation: capacity, fuel, permits and how it runs in a grid emergency
Texas wrote most of that list into statute. Senate Bill 6, passed by the 89th Texas Legislature in 2025, directs the Public Utility Commission of Texas (PUC) to set standards for interconnecting large loads in the ERCOT region. The enrolled text sets these terms:
Large load threshold: 75 megawatts at a single site, unless the PUC sets a lower one Initial transmission screening study fee: at least $100,000 Site control: an ownership interest, lease or another legal interest acceptable to the PUC Backup generation disclosure: on-site generation that cannot export to the grid and can serve at least 50 percent of on-site demand
Each line maps to a credit question. Site control proves the borrower holds the land the interconnection request is tied to, and a lender wants that interest to be the one it takes a mortgage on. SB 6 also requires disclosure of any substantially similar service request elsewhere in the state that would lead the customer to change, delay or withdraw this one, which tells a lender whether the sponsor may walk from this site.
Backup generation changes the operating risk. In an energy emergency, SB 6 lets ERCOT, through the utility, direct a large load with qualifying backup generation to deploy it or curtail load, and transmission-voltage loads interconnected after December 31, 2025 need a curtailment protocol, with any equipment installed before interconnection. For a lender, the tenant's service commitments have to survive a curtailment, and the backup plant has to be sized and permitted to carry them.
Who pays for the substation and transmission work on a data center?
In the ERCOT region, a data center above the SB 6 large load threshold pays toward the grid work: SB 6 directs the PUC to ensure a large load customer contributes to the utility's interconnection costs, and the governor's September 21, 2026 letter says projects must cover all electrical infrastructure costs, safeguards it says the Legislature has yet to codify.
SB 6 says proof of that commitment may include security on a dollar per megawatt basis, a contribution in aid of construction, or payment for significant equipment or services before an electric delivery agreement is signed. Per megawatt security is refunded, in whole or in part, after amounts owed, as the customer meets its load ramp milestones and sustains operations for a period the PUC sets, or if it withdraws capacity or the capacity is reallocated.
Two lending consequences follow. First, the money sits in the budget: a lender sizing a construction loan to cost wants it in the sources and uses, and proof it came from equity if it was paid first. Our guide to how off-site utility costs affect a construction loan budget shows how lenders treat work outside the property line. Second, any refund, whole or partial, is an asset the borrower expects later, so a lender asks who holds the refund right and whether it can be pledged.
Equipment is the third item. The Federal Reserve's October 2026 Beige Book report for the Chicago District, last updated October 14, 2026, said tech companies had tried to buy all the available electrical equipment for their data center developments, according to an equipment distributor, and suppliers had pushed back. A lender reading that asks for transformer and switchgear purchase orders with delivery dates, and a contingency sized to a late delivery.
How do water source and cooling design enter data center underwriting?
Water enters data center underwriting through two documents, the source of supply and the cooling design, because a facility whose cooling needs more water than its source can lawfully deliver must be redesigned or curtailed, and either outcome changes the budget, the schedule and the value a lender is lending against.
The source of supply comes first. A lender wants the document that gives the project its water, whether a utility service commitment, a groundwater right or a reclaimed water contract, stated in the annual and peak terms the cooling design needs. A service letter sized for an ordinary commercial connection does not support a campus that needs cooling water at peak load.
The cooling design comes second, because it sets the water demand. The Federal Reserve's October 2026 Beige Book report for the Dallas District, last updated October 14, 2026, said water usage by AI data centers has become more efficient as developers increasingly adopt closed-loop systems and liquid plate cooling. A design that uses less water can use more power to reject heat, so a lender reads the water and power files together.
Texas has turned both into disclosure items. The governor's August 3, 2026 letter directs the PUC and ERCOT to obtain from each project its projected annual and peak water consumption, anticipated sources of supply, and cooling technology, including whether it is air-cooled, closed-loop or another water-efficient system. On September 14, 2026, the governor directed the Texas Water Development Board (TWDB) to compel major water users, including data centers, to comply with its water use survey. His letter cites the Texas Water Code: a person who fails to complete and return the survey commits an offense punishable as a crime, and one who fails to return it on time is ineligible for TCEQ permits, permit amendments or permit renewals under Chapter 11. It directs TWDB to enforce those remedies against offending data centers.
TWDB initial enforcement update due to the governor: 30 days after the September 14, 2026 letter Consequence of a late TWDB survey: ineligible for TCEQ Chapter 11 permits, amendments or renewals
For a Texas loan, a complete, timely TWDB survey is a document a lender can ask to see before closing, because a missing one can block the water permits the cooling plan depends on.
What do the 2026 Texas directives require data centers to disclose?
The 2026 Texas directives require each data center in ERCOT's interconnection process to disclose its public incentives, projected annual and peak electricity and water use, on-site generation, water sources, cooling technology, community protection measures and ownership, and a project that fails the audit must be denied connection to the grid.
The August 3, 2026 letter is the core of the file. It says ERCOT is considering approximately 474 gigawatts of requests to connect, more than five times the state's record peak demand, and that approximately 90 percent of the new power requests are data centers. It directs the PUC and ERCOT to audit every data center in the interconnection process before more are approved, and to collect from each project its public incentives, electricity use and on-site generation, water use and cooling, community protection measures, and ownership and controlling interests.
In a September 21, 2026 letter, the governor directed TCEQ to halt all permits sought by data centers, and to pause the issuance of all permits related to data center projects until ERCOT completes its review. No other state agency is to move forward with regulatory approvals related to data centers until the audit information is acquired. The letter separately sets out conditions: data center projects must cover all electrical infrastructure costs, result in lower residential electrical bills and complete the ERCOT and TWDB audits, and data centers must not use water needed by local communities, must report electricity and water usage and must abide by setback requirements. The letter describes these as safeguards to be codified once the Legislature enacts them. The governor also said he will work with the Legislature to eliminate any financial incentives for data centers.
TCEQ compliance update due to the governor: October 19, 2026
A pro forma that counts on a state or local abatement leans on a benefit the governor has said he will try to remove, so build the loan request on numbers that work without it. The table lines the diligence file up against the public sources; statewide context sits on our Texas market hub.
Data center power and water diligence file, by item:
| Diligence item | Evidence the lender wants | Dated public source | Risk if missing |
|---|---|---|---|
| Diligence item Deliverable power | Evidence the lender wants Utility commitment with megawatts and energization date; interconnection study record | Dated public source SB 6 (2025); August 3, 2026 letter | Risk if missing Site valued as land, not as a powered campus |
| Diligence item Interconnection cost | Evidence the lender wants Financial commitment posted, its form and refund terms | Dated public source SB 6 (2025); September 21, 2026 letter | Risk if missing Budget gap or equity shortfall at closing |
| Diligence item Site control | Evidence the lender wants Deed or lease matching the mortgaged parcel | Dated public source SB 6 (2025) | Risk if missing Interconnection tied to land the lender does not hold |
| Diligence item On-site generation | Evidence the lender wants Backup capacity, curtailment protocol and permits | Dated public source SB 6 (2025); August 3, 2026 letter | Risk if missing Tenant outage exposure or a permit delay |
| Diligence item Water supply | Evidence the lender wants Source of supply with annual and peak volumes; TWDB survey filed | Dated public source August 3 and September 14, 2026 letters | Risk if missing Ineligible for Chapter 11 water permits in Texas |
| Diligence item Cooling design | Evidence the lender wants Air-cooled, closed-loop or other design matched to the source | Dated public source August 3, 2026 letter; Dallas Fed, October 14, 2026 | Risk if missing Redesign that moves cost and schedule |
| Diligence item Community approvals | Evidence the lender wants Zoning, setbacks, noise and light controls, traffic plan | Dated public source September 21, 2026 letter; CRE Daily, October 15, 2026 | Risk if missing Delay, a moratorium or a dropped site |
How does community opposition show up in a loan approval?
Community opposition shows up in a data center loan approval as entitlement risk: a lender wants zoning, setbacks and local approvals final before it funds construction, because a moratorium or a lost hearing can strand a site, and contacts in the October 2026 Beige Book reported both a cancellation and continuing moratorium concern.
The October 2026 Beige Book, last updated October 14, 2026, carries three notes a credit officer would flag. In the Cleveland District, one contractor reported that a local moratorium had led to the cancellation of a data center project. In the Richmond District, industrial contacts expressed ongoing concern over data center moratoriums. In the Dallas District, public opposition remains a significant concern, potentially discouraging investment or delaying projects. Site selectors see the same thing: CRE Daily reported on October 15, 2026 that some 22% of consultants in the Site Selectors Guild survey cited community resistance as grounds to drop a site.
In the loan file, opposition becomes conditions. A lender wants zoning confirmed for data center use, any special use permit or site plan approval issued and past its appeal period, and a record of the setbacks, noise limits and lighting controls imposed. A zoning report and a survey are the usual evidence; our guide to the third-party reports a commercial lender orders covers what each costs. Where approvals are still open, the financeable piece is the land, with construction funding conditioned on final, unappealed approvals.
How do you get a data center loan placed while power and water are still being proven?
You get a data center loan placed while power and water are still being proven by assembling the interconnection, water and entitlement file once and matching it against a wide set of loan programs, which is brokerage work; YieldStack, which publishes this guide, is our first recommendation for it.
Option 1, a brokerage (our pick: YieldStack). We put a brokerage first for this file because a data center loan has to be read by several kinds of lenders at once, and our criteria are the breadth of programs matched, negotiation on the borrower's side, and fees stated before you submit. YieldStack is an AI-native commercial mortgage brokerage that arranges financing for commercial real estate investors. Software matches the deal against 20,000+ loan programs and compares the options; human brokers structure the deal, negotiate on the borrower's side and carry it toward closing. YieldStack reports a median first offer in under an hour, from an institutional lender. It costs Zero upfront to submit a deal and review offers; YieldStack's broker fee is 0.50–1.00% of the loan amount and is paid only at closing. Every credit decision is made by the lender; YieldStack arranges the introductions and negotiates on the borrower's side, and no loan, rate, or closing is guaranteed.
Option 2, a lender you already bank with. A relationship lender may know the sponsor and the market, but you see one credit view of an unproven power and water file, and you negotiate the funding conditions without a comparison beside them.
The package that gets clean quotes carries:
- The utility commitment, the interconnection study record and the financial commitment posted
- The deed or lease proving site control over the mortgaged parcel
- The backup generation plan, curtailment protocol and permits
- Water source documents in annual and peak terms, and the cooling design
- Zoning and local approvals with their conditions; for Texas, the ERCOT audit file and TWDB survey
- Target loan amount and a budget that carries the infrastructure costs
When the file is ready, send the data center deal for review.
The bottom line
Data center lenders underwrite power and water before the building: a utility commitment, a funded interconnection position, site control over the mortgaged land, a water source that fits the cooling design, and final local approvals. In Texas, SB 6, the August 3, 2026 ERCOT audit and the September 14 TWDB survey directive require much of it, so assemble it once.