States are rolling out the red carpet for data center development, offering lucrative incentives for the promise of tax revenue and jobs in an exploding industry, while their energy demand and potential environmental repercussions prompt concern.
Hardly a month went by this year without a governor announcing a tech company’s investment of hundreds of millions of dollars in their state to build a data center, in a push spurred by the growth in cloud computing and artificial intelligence.
Google is building two new data centers in South Carolina and investing $1 billion for one in Missouri. Meta is also building a data center in South Carolina, its first there, as well as its second one in Alabama. Microsoft is heading to Indiana. And last month, a Texas-based company broke ground on another data center project in Illinois, lured by the state’s significant tax incentives.
“We have chased down every potential dollar of private investment we could find and leveraged every incentive and grant at our disposal to attract and build up existing and new industries,” Gov. JB Pritzker said of the state’s Data Centers Investment Program, according to Capital News Illinois.
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The economic development burst is being accompanied by an enormous need for electricity. In Virginia — host to the largest data center market in the world — data centers consumed more than 25% of the state’s electricity use in 2023, according to EPRI.
Gil Quiniones, president and CEO of power company ComEd, attended the Illinois data center groundbreaking ceremony. In a statement released by the governor’s office, Quinones said ComEd looks “forward to delivering the resilient and reliable electrical infrastructure needed to serve their needs today and well into the future.”
Data center capacity grew by about 24% in the first quarter of 2024 from the same period a year earlier, led by northern Virginia, according to commercial-real estate firm CBRE. The trend is only expected to intensify: demand for data center capacity is projected to rise between 19% and 22% per year through 2030, according to McKinsey & Co.
Goldman Sachs estimates that with that growth, data centers’ power demand will increase 160% by 2030. That’s enough to require the construction of new power plants and other infrastructure, which tech companies have been willing to finance.
But the cost of building that new infrastructure could fall to consumers if the data center goes bankrupt, moves or stops operating before it pays off the construction costs.
Another cost driver could result from the construction of transmission lines, which, under current regulations, are spread over multi-state regional transmission organizations.
Maryland this year sought to block a $5 billion Virginia plan to build transmission lines. Maryland argued that the project was designed to support the data center industry in Virginia and that Maryland residents would not see any of the project’s benefits. The plan was approved in April.
Meanwhile, as data centers seek power sources, environmental groups are warning of the risks of emissions from a rush to natural gas and risks associated with a turn to another low-emitting source, nuclear power. Amazon, Google and Microsoft have all teamed up recently with utilities to build new nuclear power generation.
The National Resources Defense Council warned earlier this year that “reopening a nuclear plant is not like putting your boat back in the water after the winter.”
The risks have given some lawmakers pause. Virginia Sen. Danica Roem (D) introduced a series of bills this year to slow data center growth in the Washington, D.C., suburbs, but none were enacted. Georgia lawmakers passed a bill to suspend tax breaks for two years, but it was vetoed by Gov. Brian Kemp (R).
Abe Silverman, who studies how to overcome barriers to the clean energy transition at Johns Hopkins University, said data center developers that are ramping up fast may need to be patient as lawmakers figure out how to put the best policy in place for the best outcomes.
“Business may have to slow down a little bit,” Silverman said. “And government has to speed way up.”
He and other experts said states should take advantage of tech companies’ avowed willingness to pay more for electricity to help enhance the grid overall, including requiring the companies seeking data centers to cover the cost of transmission lines that would help connect clean energy to the grid.
Helping put more clean energy on the grid would also help states hit their clean energy targets. Thirteen states currently have enacted legislation to move to 100% clean energy or renewable energy by a specific date.
But those state emissions goals are under threat if more renewable energy can’t be used to power the data center demand, and states turn to natural gas or other fossil fuel sources.
“These large loads that require constant electricity may lead to longer use of fossil fuel generators, and so for states that have clean energy targets, it may make it more difficult for states to meet those targets,” said Romany Webb, the deputy director of Columbia Law School’s Sabin Center for Climate Change Law.
New transmission lines would also allow for power sharing between utility territories during peak times, which would help keep prices down, said Michelle Solomon, a senior policy analyst at Energy Innovation, a nonpartisan think tank.
“Typically, when there is a peak in electricity demand, not everywhere is peaking at the same time,” Solomon said. “So if you’re able to share that electricity, you can reduce costs for customers.”
Solomon said states should make it easier to site clean energy projects. She referenced Michigan, which last year enacted legislation to block localities from rejecting large wind and solar projects.
States could also require tech companies to make improvements to the existing grid, such as applying grid-enhancement technologies, Solomon said. Those technologies include a raft of hardware and software tools that help increase the capacity of the power grid without building new lines.
Andrew Chein, a computer science researcher at the University of Chicago, said the data center trend is a complicated issue that will need creative solutions, and that, unfortunately, lawmakers do not have much time to get up to speed.
“There’s a lot of education that needs to be done,” Chien said. “I think a lot of the folks in those roles, they don’t have the luxury of spending the time to understand this stuff in the way that I do. They’ve got a lot of people pulling on them. So we need to create a broader understanding.”