The rapid expansion of data centers in the United States, fueled by the growing demand for artificial intelligence and cloud computing, is prompting states to offer attractive incentives with the hope of reaping economic benefits. However, this trend is also encountering resistance from certain lawmakers and communities concerned about the potential impacts.
Recent legislative activities highlight fierce competition among states to attract these data centers. This rush was notably intensified following the late 2022 introduction of OpenAI’s ChatGPT, which sparked a surge in demand for energy-intensive data centers and the search for suitable locations. Many states are extending substantial financial incentives, sometimes worth tens of millions of dollars, but face challenges in gaining approval. Often, the incentives are contested, with efforts made to ensure that data centers cover their own electricity costs or adhere to energy efficiency standards.
Tensions have risen in areas where a large influx of these expansive data centers has stirred conflicts with local communities. The debates primarily revolve around the critical resources that tech firms and developers need: extensive land areas, tax incentives, and significant supplies of electricity and water. The scale of these needs is escalating, with data centers requiring from dozens to hundreds of megawatts of power and expanding from dozens to hundreds of acres for massive facilities, sometimes referred to as hyperscalers.
Critics argue that data centers employ relatively few people and provide limited long-term job creation. Proponents counter that these centers necessitate extensive construction work, make substantial local financial expenditures, and generate considerable tax revenue for local governments.
In Pennsylvania, lawmakers are crafting legislation to expedite the permitting process for data centers. Recognized as a potential data center hub, Pennsylvania fears missing out on significant investment opportunities flowing to other states. “Pennsylvania has companies that are interested, we have a labor force that is capable and we have a lot of water and natural gas,” stated state Rep. Eric Nelson. “That’s the winning combination. We just have a bureaucratic process that won’t open its doors.”
This year has seen considerable developments concerning data centers. Kansas, for instance, has introduced a new sales tax exemption on materials used to build and equip data centers. Likewise, Kentucky and Arkansas expanded existing exemptions to qualify more projects, while Michigan has approved incentives with certain conditions like utilizing municipal utility water, clean energy, meeting energy-efficiency measures, and ensuring the payment of electricity costs.
About three dozen states now offer some form of tax exemption for data centers, making it essential for states to have such policies to remain competitive. Andy Cvengros of JLL, a commercial real estate firm, emphasized that lacking these incentives could be a dealbreaker for many developers, especially for large-scale data centers.
In West Virginia, lawmakers passed a bill establishing “microgrid” districts exempt from local zoning and electric rate regulations, encouraging data centers to procure power from their own facilities. Governor Patrick Morrisey hailed this as a significant policy to make West Virginia stand out as an attractive location for data centers and IT companies. Similarly, Utah and Oklahoma enacted laws to simplify power procurement for developers, bypassing the grid, while Mississippi launched substantial incentives to attract Amazon data centers.
In South Carolina, Governor Henry McMaster recently signed legislation to ease regulations for constructing power plants to accommodate data center demands, including a notable Facebook facility. However, this decision faced resistance from some lawmakers concerned about data centers’ substantial water use, land occupation, and the financial burden on regular ratepayers for new power plants. Senate Majority Leader Shane Massey voiced concerns about the potentially unjust costs on consumers, while state Sen. Russell Ott emphasized the broader societal demand for electricity that data centers fulfill.
Nevertheless, resistance persists in established data center regions. Oregon lawmakers are advancing a bill to mandate data centers to bear the costs of necessary power infrastructure. A similar debate is ongoing in Georgia, while in Virginia, Governor Glenn Youngkin vetoed legislation that aimed to increase transparency regarding data center operations and their impacts.
Texas, still recovering from the 2021 winter blackout, is grappling with safeguarding its electric grid amid the rising data center demand. Though lawmakers aim to attract data centers, a proposal to expedite direct connections between data centers and power plants faced opposition due to clauses granting new regulatory powers and energy use restrictions. Walt Baum of Powering Texans warned that these stipulations might deter developers, potentially causing Texas to lose out to other states in data center development.