Deal Disruption or Market Opportunity? The Impact of Texas Senate Bill 6 on Project Finance

Demand for electricity is surging in America, driven largely by AI data centers and other energy-intensive users powering the digital economy. This rapid growth has heightened concerns among businesses and consumers over rising costs and grid reliability. In response, Texas lawmakers passed Senate Bill 6 (SB6), a sweeping overhaul of how the state regulates large power users and behind-the-meter projects such as solar, battery storage, and data centers. 

These changes could significantly influence the state’s energy future. But what does SB6 mean for renewable energy project financing in Texas? How might it affect solar, storage, and other emerging projects? And how can investors position themselves to take advantage of the new opportunities?

In the eighth episode of Accelerating Energy, host and Sidley partner Ken Irvin welcomes Chris Panaro, Executive Director and Assistant General Counsel at Nomura, a global leader in wealth management, investment management, and investment banking. Together, they discuss how SB6 is reshaping the financing and infrastructure development landscape in Texas. Their conversation examines the structural shifts investors are seeing in project financing, the evolving allocation of risk to developers, and whether these policy changes are encouraging new capital to flow into Texas energy projects.

 Executive Producer: John Metaxas, WallStreetNorth Communications, Inc.

Transcript

Deal Disruption or Market Opportunity? The Impact of Texas Senate Bill 6 on Project Finance
Ken Irvin and Chris Panaro
October 2025

Ken Irvin:
Demand for electricity is surging in America. Experts say use will climb 25 percent through year 2030 and jump by 78 percent in 2050. Virginia, Georgia, and Texas will likely see the biggest increases, driven largely by AI datacenters and other energy-intensive users that fuel our digital economy. As demand grows, so do the stakes.

Consumers and businesses are worried about rising costs and reliability. Lawmakers in Texas have responded. They’ve passed Senate Bill 6, or SB6, an overhaul of how the state manages big power users and behind-the-meter projects like solar, battery, and datacenters — changes that could transform the state’s energy future.

Chris Panaro:
When you start from a state that lets you succeed and you basically look at different ways, with tax credits that are coming in, and also different financing models, you understand there’s a reason California developers are building in Texas and not in California.

Ken Irvin:
That’s Chris Panaro, Executive Director and Assistant General Counsel at Nomura, a global financial services leader in wealth management, investment management, and investment banking. What does SB6 mean for renewable energy financing in Texas? How will it influence solar, storage, and other projects, and how can investors maximize the emerging opportunities? We'll find out in today’s podcast.

From the international law firm Sidley Austin, this is Accelerating Energy. We drill down on critical and late-breaking topics in energy transition and policy. We help businesses look over the horizon for what lies ahead. I’m your host, Ken Irvin.

Hello, and welcome to Sidley’s Accelerating Energy podcast, episode number 8. Chris, it’s great to have you here with us today. Thanks for taking the time to talk and share your insights on how energy and finance are evolving in Texas.

Chris Panaro:
Thank you, Ken. Great to be here. Very excited to talk about SB6, Texas, and everything that is going to impact energy and finance coming into the state in the next couple years.

Ken Irvin: Let’s talk a little bit about your background. You serve as counsel to Nomura’s infrastructure and project finance business in New York. You’re advising on some of the most complex energy, transportation, and digital infrastructure projects worldwide.

This experience makes you the perfect guest to help us unpack how financing is shaping the energy transition, especially in Texas. So, before we jump into everything today, could you please give us a little quick snapshot of your background, the types of projects you’re most often involved with, and how you interact with your clients?

Chris Panaro:
Absolutely. The project finance group in Nomura has been around for a little over eight years. I joined back in 2017, and we have a diverse set of assets that we cover, from solar to wind, battery storage, to liquefied natural gas, LNG facilities, gas-fired power plants, and then, in the digital infrastructure category, we have datacenters and, very recently, fiber optic networks.

It covers Latin America through Europe, also heavily focused on Japan. Japan is light years ahead of the United States in terms of wind development. So, we’ve done a lot in wind in Japan, and this December will mark Nomura’s 100th anniversary. So, it’s a very exciting year for Nomura, and with the recent tax legislations affecting tax credits for renewables, it’s going to be a very interesting couple of years at Nomura’s project finance group, as well.

Ken Irvin:
Let’s dive in. We hear a lot about reliability concerns stemming from this contango market for demand. In Texas, earlier this year, the lawmakers there passed Senate Bill 6, reshaping how large energy users connect to and operate on the grid. The changes carry major implications, not just for developers, but for all the investors and financiers backing the projects. Tell us, from your point of view, how has the bill changed the financing landscape/infrastructure development landscape?

Chris Panaro:
When we talk about this bill, we have to realize how investors and lenders are going to recalibrate how they access risks, returns, and financing structures in Texas. With SB6, ERCOT can review a project, look at the region that it’s in, and if it already has transmission constraint and it’s heavily reliable on renewable energy, then this bill will make a datacenter install on-site generation, upgrade the grid, or potentially reduce its load.

So, looking at this from financing implications means we’re going to have higher up-front costs. We are dealing with more chances of going offline. So, we’re going to have to worry about bringing on diesel, bringing back-up generation. This shifts the risk to the investors, not the banks, nor the customers in Texas, but this goes right to the investors, and this goes to the developer.

So, when we’re looking at risk allocation, we have to focus on power, and with that, we have to focus on what is the reserve margin in the area for the power that we’re in, in terms of the node system. We look for areas of high power, in case there is a strain on the grid, and then we have to make sure that there is back-up power, now, since we have to disclose this to ERCOT or face the potential of shutting down.

So, infrastructure planning, I think, is now more prominent, since developers will have to pay for this. They’ll have to pay for the interconnection study cost. That is not being passed to the consumer. So, the return on investment may need to be recalculated in terms of how we view financing datacenters prior to SB6 and what we’re going to look at going forward.

Ken Irvin:
Interesting. It sounds like there’s a whole host of additional issues, now, that SB6 makes you have to think about as you’re underwriting. Texas, being one of the nation’s leading datacenter hubs, second only to my home state of Virginia, technically a commonwealth of Virginia, these hubs are not only energy intensive, but they’re like central to the state’s respective long-term economic development.
But their scale does raise challenges for the grid. We’ve seen issues where people have been worried about loss of large load. We’ve seen issues where folks are worried about stranded cost, consumers getting hit with stranded cost and undue cross-subsidizations.

How do you look at these issues when you’re underwriting a project? What are you weighing about opportunities versus risks when you decide that you’re going to go to a final investment decision or otherwise commit to a project?

Chris Panaro:
Let’s first look at the opportunities that we would take to a credit committee when looking at any transaction. When dealing with Texas, Texas is a very inviting environment, for a couple of reasons. One, it’s a very strong economy. Two, it is a leader of adding renewables to the grid in the United States.

That second one is very important for a lot of companies’ corporate sustainability goals. The ability to put renewables onto the grid, which Texas is doing the most, now, out of any other state in the nation, is important for any company’s ESG, and also in terms of how a company wants to define how they are improving grid stability and energy in the United States.

When it comes to adding more power, Texas is energy-friendly. It’s also an excellent environment for doing this. In terms of business, Texas is extremely business friendly. There’s just more power coming into Texas, right now, than anywhere in the country. A reason for this is also Texas’ access to national gas.

Right now, I think the United States is looking at a gas pipeline problem as opposed to an electric problem. In Texas, pipelines are everywhere. That changes the economics and the reality of the situation as opposed to getting gas into the Midwest.

So, the opportunities are very strong. There’s definitely a policy momentum going on, right now. Having said that, the risks and challenges are also there. Right now, there is massive energy demands, and the reserve market has been shrinking, or rather, the secondary market for where you’re going to get energy, if you need to, is not what it used to be.

There also is a real situation amongst grid reliability, and SB6 is addressing this by making datacenters pay for interconnection studies and, if necessary, to upgrade the grid. There’s also high insurance costs in Texas. From a weather point of view, hailstorms are just a high insurance burden.

So, that does come into this, and the colocation factor is something else that I think needs to be looked at with SB6 in that datacenters now need to show to ERCOT that there is a second form of power if they need to basically move power off the grid during a time of high demand.

ERCOT needs to know how we’re going to make a determination if a datacenter is under constraint, and that is going to be something that every risk assessment needs to basically go under, whether that is diesel, or whether that is from a gas-fired source.

So, this is going to pretty much come into investor considerations on how we’re going to look at the pricing and also how we’re going to get our money back. All our money back is within 3 to 5 years post-construction. So, that’s going to be a big diligence item, especially when we’re diligencing the lease, which is paying the project back.

It's going to have to have a strong length, and it’s going to have to have a pretty robust payment to make sure that all the additional risks and challenges that I mentioned are going to be picked up within the model.

Ken Irvin:
That sounds like it didn’t get easier with SB6. You know, maybe there’s more reliability, and maybe it’s actually, ultimately, better for all constituencies to have SB6 and the requirement that there be generation available, off-grid, so that the grid operator can shed load when it needs to, but it definitely seems like you got a whole bunch of extra concerns there.

SB6 talks in terms of users that are going to consume 75 megawatts or more, and any developers of projects now are expected to pick up more of the tab for the infrastructure development, the grid improvements, and the interconnection. You talk in terms of your initial financing. You look to have a 3-to-5-year exit from that.
It seems like there’s a real shift going on here. How is all this change going to affect projects? What kind of structural changes do you see in the financing and the allocation of risk that the developers are going to be asked to take on?

Chris Panaro:
This is going to be a shift in cost burden, essentially, and this will go to the developer. So, as this goes to the developer, there’s going to be a need for more equity. The developer can either insert more equity or get it from another source. So, financing structures may get a little more creative.

There may be equity bridge loans, or we may just be adapting to these additional costs by raising the price of a loan. In terms of the project finance loans, they will always be there. I don’t really see a change in the financing as opposed to the project economics.

The construction of datacenters is relatively straightforward. The real issue is still getting the power. So, I think when you’re looking at risk allocation, it’s still where is that power coming from, and where is the secondary source of that power going to come from if a datacenter receives a 24-hour notification from ERCOT that it will be curtailed?

The 24-hour notification is something that is new in the SB6 legislation, and it’s just saying that ERCOT needs to notify a datacenter during an emergency. So, you will be notified within 24 hours if your datacenter is going to be shut down. This puts selective diligence on what lease you’re going to be financing.

If your lease has various provisions where the off-taker can terminate within a day or two, I think that’s going to be very dangerous. If you’re dealing with a lease that has a 5-to-7-day termination provision, that’s a little better.

Winter Storm Uri was a terrible event. It was the worst event in 30 years. It took everything off the grid for about five days. So, if you’re dealing with a lease where a strong off-taker can terminate within 5 days, I think you just had a real-life event where you have to realize you’re going to be selectively financing leases which are stronger and may go past 5 days into 10-14.

I think diligencing these leases, the terms of the termination, is going to be really important because that is where the money will stop. So, you’ll see a lot of credit committees passing on deals that we cannot derisk, and the power and construction risk are still an issue, but I think anything that could shut off the tenant leases that are paying the project are also going to be very, very important with this legislation.

Ken Irvin:
I hear you, and I think that’s very understandable, yet AI continues to grow and expand, and there are new chips, and they’re going to be leagues faster in processing for AI than we have today, and they’re going to consume even more megawatts of energy.

Folks are talking about gigawatt-size datacenters. Even with all of what you’re talking about, it sounds like SB6 still makes Texas attractive. It seems like there may be more specifics to deal with, but there’s more certainty, perhaps. Would you agree?

Chris Panaro:
100 percent. SB6 provides clearer rules, which reduce regulatory uncertainty, and that’s something investors value. SB6 was passed in June, a couple of months after a gigantic blackout on the Iberian Peninsula with Spain. In Spain, there was regulatory uncertainty in that there really was no direction in how much power was coming from renewables.

They were told it was too much by Brussels. They didn’t listen. They were told too much by Paris. It was unstable. Again, they didn’t listen, and you had the largest blackout on the Iberian Peninsula, ever. I’m not saying that made SB6 get passed, but it definitely gave some tailwinds in getting more regulatory certainty onto the grid, which is what we needed.

Texas’ surging power is just going to continue. Datacenters, the increased population, industry all make it an attractive market to have SB6 in place, and you’re really building on a foundation, which makes it a little more expensive, I’d say, but it’s not going to tamper continued expansion.

This is not going to reverse the population explosion in Texas, and this is not going to reverse Texas as the second datacenter in the nation, coming right out of Northern Virginia, where you sit, actually. So, this continued expansion into the power market makes you want to go to Texas, and SB6 is another tool that is basically going to provide more regulatory certainty when you’re dealing with a grid operator that is now going to have more flexibility. Flexibility is good.

Ken Irvin:
Reliability is essential, right? The blackout in Europe was a frequency issue that became a voltage issue, and these large loads suddenly dropping out or not being available for release by the grid operator, like the operator needs, really kind of hammers the reliability issue. It seems SB6 was rather forward-looking in that regard. So, it sounds like it’s a terrific positive.

We look at SB6, and we’ve talked about how it’s a good thing, how it’s got more requirements. How do you think this evolves just modeling for financing datacenters, AI, in Texas and outside of Texas, in other places?

Other parts of the country are also looking at having demand be more flexible, large load be more flexible. Do you see SB6 kind of like showing the way? Do you think it’s helpful for developing models to provide financing to datacenters and AI development?

Chris Panaro:
I do. Texas is a great example because the financing model of Texas is based on energy payment. There’s no capacity payments in Texas. So, Texas is a state that allows you to fail and allows you to succeed. If you are not producing enough energy to get payment, you will fail.

You do not get paid just to exist, and that is contrast to other markets in the nation, like PJM, where you receive capacity payments just to exist, regardless of whether you’re producing power or not. So, this will make it harder to finance, from a project finance point of view, in that there are no capacity payments to cover your debt.

But you are looking at strong financing models, which are going to heavily diligence and rely on long-term PPAs, robust leases, which don’t have easy termination provisions, or if there are termination provisions, they have payment and a model of payment which may cliff off but will give developers their way to remove the risk.

There’s always the way of basically doing project bonds after taking out the risk, but when you start from a state that lets you succeed and you basically look at different ways, with tax credits that are coming in, and also different financing models, you understand there’s a reason California developers are building in Texas and not in California.

And SB6 is, again, going to just make the region more certain, and once all of these obstacles are put into a financial model, I think it’s going to be a good success.

Ken Irvin:
That’s interesting. The folks in California might have their feelings hurt, a little bit, there, because I think they, too, want to enjoy the AI boom, but the energy-only market in Texas does stand unique compared to the other organized markets, right? Like, hopefully, the energy price reflects actual scarcity and that makes up for the so-called missing money issue that capacity markets are supposed to address.

And it seems like it is working better in terms of allowing these large loads to interconnect. They seem to be getting interconnected faster, and the market is showing how people perceive Texas as being better. Are there other policy changes, other issues out there that you think attract investors to Texas energy projects, attract Texas datacenters to Texas?

Chris Panaro:
Yes, and you actually said it already, and it has to do with speed. Permits in the United States can take anywhere from 4 to 5 years in any solar project. I’m just going to say that generally, and that’s 50 to 60 percent less in Texas. So, you just took a 4-to-5-year permit window, and you brought it down to 2, which makes your construction timeline 60 percent quicker.

That’s going to lead to more competition, and competition in the market is really what ERCOT originally was founded on. There is a proven reliability of solar storage and battery projects, and with this, you will have, I think, more reliability on the grid. You will also have, as SB6 will come on, you have studies and timelines for all these upgrades that developers will have to do, but they’re shorter in Texas, which is another important aspect.

Besides the permits, all the studies and timelines and upgrades to the grid that SB6 is mandating that these developers undertake, in Texas, they’re going to be much easier. So, it’s going to be easy to do these studies and upgrades and easier to connect to the grid.

That is very important because if something takes a long time or there is an issue of delay, a credit committee is basically going to reject this. With more competition, and I think this is extremely important from a business model, you’re looking at multiple off-takers on projects, and that’s just going to derisk.
When you’re looking at 3-to-4 off-takers, as opposed to just 1, you can afford a possible bankruptcy. You can have a different derisking model and the worst downside case scenario that you could imagine, and that’s going to, again, improve your capital market.

So, if you’re looking at a project bond for a take out, that is just another avenue to derisk that any credit committee is going to look at, and then, I think, away from the state, the local market fundamentals in Texas are very positive in that we have not seen major local opposition to datacenters, as we have in other areas of the country.

Tucson, Arizona, just stopped a multi-billion-dollar datacenter from being constructed over energy and water consumption. That developer has the money and definitely has the financing to do that. They may go over the border to Texas. I have not seen major opposition yet in local markets against that.

We know, in Northern Virginia, it’s coming to an end in terms of just how many more developers can come in, because the protest and the local opposition is kind of winning. So, Texas doesn’t have that yet. It’s more friendly, from a reputational point of view, in terms of banks’ reputational committees, in terms of where they’re going to go with these developments next.

Ken Irvin:
Zoning and land use ultimately gets to be very, very local, and we’ll bring you back, sometime, and dive into those issues, because, you know, that is meddlesome at times. Speed to power, that’s what I hear the datacenter AI developers are very focused on, and it sounds like, from your take, Texas has taken a giant step forward in solving that, getting the datacenter energized and powered much faster in a way that perhaps other markets should look to.

I don’t know that the other markets are going to abandon the capacity or our resource adequacy model, but moving forward faster, speed to power, is something the demand side of the equation, here, definitely wants, and sounds like you see that happening in Texas.

Chris Panaro:
Correct. Yes. I think when you need to examine why SB6 was introduced, you need to understand that it was introduced in response to anticipated grid instability. It wasn’t introduced just in a way to attract developers and bring banks to the region.

It was really put out there in the legislature as a way of bringing stability in the ERCOT market as a result of an increasing population demand, as a result of demand from datacenters, and a result of artificial intelligence becoming more prominent. So, when you are financing all these innovations, you basically follow the money. Where will the money follow? Where will it flow from? And it flows into regulatory certainty, as opposed to regulatory uncertainty.

This brings higher confidence level and greater return on any model. Texas is doing a lot besides SB6 that is just going to basically push this policy forward, with the growth of the stock exchange in Texas. That is one, I think, important aspect of this.

A lot of SB6 is tied to federal clean energy policies. So, to the extent that the federal government helps clean energy, Texas will follow. To the extent that there’s a reverse, I think you’ll also see a reversal on that, but every region needs to address the bottlenecks in their electrical grid, and SB6 is a proactive way of doing that in a market that’s unlike any other market in the United States.

So, it is a phenomenal example for other markets to follow. I think artificial intelligence needs SB6 to function. If you’re looking at any executive order to push artificial intelligence forwards, that's great, that sounds great on paper, but you also need local legislation, like SB6, to actually let it be reliable and certain.
And I think SB6 does give artificial intelligence just much more certainty on grids which were uncertain. So, I’d say that Texas will need to supply power quickly to this region. ERCOT is plugging in more, with more studies, with more upgrades to the grid.

SB6 is mandating developers that they accommodate this large load, and it’s going to basically give a way to put enough supply on this grid, which is going to get a lot of demand. And with the population exploding, this is all going to come together to be a very, very interesting couple of years, going forward.
Ken Irvin:

Texas has some certain natural advantages, with all the natural gas, and all the pipelines, and everything. So, it’s definitely an attractive market. Chris, it’s been terrific talking with you. There’s a lot of this we could go on forever, and there’s some of it that maybe we’ll come back and follow up on. Any final thoughts, here, before we close out the podcast?

Chris Panaro:
I think you actually just said it when you spoke about Texas’ advantage in that, as I said before, the United States really doesn’t have an electrical problem. It has a natural gas problem, and in saying so, it has a pipeline problem, being that we have so much natural gas, but we can’t get it to the areas that need it most.
Texas is awash in natural gas, and it also has access to these pipelines, but it also has something else that I think is important, and that is it has transmission lines coming from the north that were built to bring all of the wind energy online, and that’s something that we’re seeing, right now, get developed.

We’re part of a financing in Arizona that is 500 miles away from its connection point in San Diego County, because San Diego is getting their electricity, right now, from Mexico, and many people don’t know that, but we finance the projects to bring power from Arizona into San Diego County, 500 miles away, to meet that need.

Texas, many, many years ago, was in front of that ball, being that they knew that they had the resources, but they needed to bring the transmission in. So, Texas got ahead of that smartly, and I think SB6 is going to work out very, very well in terms of all that Texas has done.

Ken Irvin:
Terrific. We’ve been speaking with Chris Panaro, Executive Director and Assistant General Counsel to Nomura, about the impacts of SB6 on renewable energy financing in Texas and where investors see the biggest opportunities ahead. Chris, it’s been a true pleasure speaking with you. Thank you for your time today.

Chris Panaro:
Ken, thank you. Absolute pleasure.

Ken Irvin: You’ve been listening to Accelerating Energy. I'm Ken Irvin. Our executive producer is John Metaxas, our managing editor is Karen Tucker, and our associate editor is Darren Schabdach. Subscribe on Apple Podcasts or wherever you get your podcasts. Thanks.

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