Microsoft signed a "letter of intent" to secure nearly 1.4 gigawatts of power from a microgrid project in Mason County, West Virginia, marking the first time the tech giant has committed to a fully off-grid, gas-powered data center at the gigawatt scale. The project is being developed by Nscale, a two-year-old startup building AI compute campuses in the U.S. and Europe.

The deal represents a significant shift for Microsoft, which has previously used gas generators mainly for backup capacity in new data center builds rather than as a primary energy source. Nscale plans to deploy hundreds of gas generators by the first half of 2028 for the project.

West Virginia's Strategic Advantages

West Virginia has emerged as an attractive location for data center development due to its ready supply of cheap gas and new legislation facilitating off-grid data centers. The state sits atop the Marcellus Formation, the largest gas field in the country, which spans Appalachia. Stuart Pann, senior advisor at Nscale, said the company saw a significant opportunity in West Virginia because the facility can have four separate pipelines fed into it, with potential to become a gas hub similar to Henry Hub in Louisiana, which serves as a price benchmark for North America.

Nscale acquired the project when it took over American Intelligence & Power Corporation, which specialized in behind-the-meter microgrids for AI data centers. The company has raised nearly USD 4 billion so far and, in March, added three new directors to its board, including former top executives of Meta and Yahoo.

Legislative Changes Drive Data Center Rush

West Virginia enacted a law last year to attract data center investment by allowing developers to build off-grid power plants as long as the projects use more than 70% of the electricity generated. The law also rescinded a requirement that microgrids rely on renewables, paving the way for gas and coal to provide baseload power for off-grid developments.

Building behind-the-meter allows companies to sidestep PJM, where the wait time for a grid interconnection runs more than six years. The new legislation has attracted a wave of AI data center developers to West Virginia in the last year. Governor Patrick Morrisey said last week that Google bought property and received approval for a multibillion-dollar data center project. Three other companies, Penzance, Fundamental Data LLC, and TransGas Development Systems LLC, also arrived in the state, with the latter three companies relying on gas for power.

Environmental and Corporate Strategy Considerations

Microsoft's approach represents a portfolio strategy to energy for its global AI infrastructure based on local conditions, grid readiness, and long-term goals. A Microsoft spokesperson said this flexibility allows the company to "bring capacity online faster, ensure reliability, and limit strain on local grids while continuing to invest in efficiency and carbon-free energy for the future."

The deal comes as Microsoft faces complications with its ambitious climate goals. The company's buildout of AI infrastructure has increased its emissions and carbon intensity since 2020, and greater investment in gas will likely continue that trend. Microsoft confirmed this week that it's in talks with Chevron and investment fund Engine No. 1 about a long-term offtake deal for a proposed gas power plant in Texas.

However, Microsoft is also doubling down on carbon removal investments, dominating the market by purchasing 93% of the global carbon removal market in 2025. The company is one of the largest corporate buyers of renewable energy and reached its goal in 2025 to match 100% of its own electricity demand with clean power. Microsoft also invests in clean baseload options, including Constellation's effort to restart the Three Mile Island nuclear plant and an offtake agreement with Helion Energy for its first commercial fusion plant, targeted for 2028.

Nscale's Changing Energy Strategy

Until now, Nscale has prioritized projects with abundant renewable energy, according to spokesman Jeffrey Gelman. The company uses hydropower in Northern Norway, wind and solar power in Portugal, geothermal in Iceland, and wind power in West Texas. Gelman said the company has "generally defaulted to finding the lowest carbon options for building, and a lot of our computers are powered by 100% renewables."

That approach appears to have changed with the West Virginia project. There are no plans to develop clean energy for the West Virginia facility, Pann said. The gas generators Nscale bought from equipment giant Caterpillar remove most nitrous oxide emissions, though they still cause planet-warming carbon emissions. Nscale is exploring the potential of adding carbon capture and sequestration technology, though this will depend on customer demand and economic viability, as CCS requires its own pipelines.

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