SpaceX to Power TeraFab Chip Factory in Texas via On-Site Generation and Battery Storage

SpaceX is set to power its TeraFab semiconductor campus in Texas entirely through on-site electricity generation and battery storage, bypassing the traditional grid connection, according to a tax-abatement agreement with Grimes County that has been fully executed. The move underscores a growing trend among large-scale industrial facilities, particularly those tied to artificial intelligence and advanced manufacturing, to secure dedicated, behind-the-meter power sources amid concerns over grid reliability and long interconnection queues.

The agreement stipulates that the completed facility is "expected to be powered by electricity generated by on-site power plant(s) and [is] not expected to use electricity from the grid." It also outlines plans for the campus to include semiconductor manufacturing facilities, natural gas-fired power plants, and artificial intelligence facilities to be used in conjunction with the manufacturing process. Additionally, the agreement explicitly references the construction of a battery storage facility to supplement power to the site, although the capacity of the proposed power and storage assets was not disclosed.

The TeraFab campus, located adjacent to Tesla's headquarters in Austin, was officially confirmed by Elon Musk in March 2026. The project is a joint venture between Tesla and SpaceX, with the facility designed to produce chips for space data centers, advanced vehicles, and humanoid robots. In January, Musk indicated that his team would target a nine-month production cycle for its semiconductors, three months faster than the annual cadence typically used by Nvidia and AMD for their AI accelerators. Intel joined the project in April to support the fab's development of chips at scale.

The agreement also addresses environmental stewardship at the site, with SpaceX committing to use commercially reasonable efforts to control water use and promote water reuse. The company will construct an on-site wastewater-treatment facility as part of the campus development, reflecting a broader effort to manage the resource-intensive nature of semiconductor manufacturing.

The decision to go off-grid is not new for Musk's ventures. His AI unit, now known as SpaceXAI, has deployed natural gas turbines across its data center portfolio, a strategy that has drawn criticism from local communities concerned about the environmental impact of the polluting engines. In April, the civil rights organization NAACP filed a complaint against xAI and its subsidiary MZX Tech, alleging that 27 methane gas turbines powering the Colossus 2 data center were operating illegally in violation of the Clean Air Act.

In response, the company has agreed to remove 69 turbines from that site over the next year, ahead of the installation of a permanent 1.2GW power plant for the data centers, which received permitting approval in March. While the removal of the temporary turbines begins this month, the permanent installation will apparently comprise 41 gas turbines, meaning local residents may not notice a significant change in the immediate vicinity.

The TeraFab project highlights a broader industry shift toward behind-the-meter power solutions, as hyperscale data center operators and advanced manufacturers seek to accelerate project timelines and reduce dependence on strained utility grids. By integrating on-site generation with battery storage, SpaceX is positioning the campus to operate with a high degree of energy independence, a model that could become increasingly common as AI infrastructure demands continue to surge.