74,000 jobs, $5.5 billion in labor income, $9.1 billion in annual GDP, these are the findings in a recently released Joint Legislative Audit Review Commission (JLARC) report “Data Centers in Virginia.” The majority of this economic activity is derived from the construction phase rather than in ongoing operations, and with more data centers being planned it is expected this trend will continue into the foreseeable future. Another key finding is the staggering amount of electricity required for their operation. Currently, 5 gigawatts (GW) of electric generating capacity are needed to power the Commonwealth’s approximately 340 data center buildings, and it is expected this demand will double over the next 15 years. To put this in perspective, in 2023 the U.S. Energy Information Administration (EIA) reported 29 GW of nameplate generating capacity from all of Virginia’s electric power plants, with the significant caveat that intermittent sources of renewable energy, such a solar (approximately 3.6 GW of this total), only produce at about 23 percent of their full capacity. In addition to the generation needed to power the industry, significant improvements to high voltage transmission will be necessary.
Other key findings of the report include the following:
- Data centers can generate substantial local tax revenues for localities that have them;
- Building enough infrastructure for unconstrained data center demand will be very difficult and meeting half that demand is still difficult;
- Existing electric utility requirements and processes help limit risks associated with system capacity and reliability;
- Data centers are currently paying their full cost of service, but growing energy demand is likely to increase other customers’ costs;
- Data center backup generators emit pollutants, but their use is minimal, and existing regulations largely curb adverse impacts;
- Data center water use is currently sustainable, but use is growing and could be better managed;
- Localities have allowed data centers to be built near neighborhoods, but some localities are taking steps to minimize residential impacts;
- Data center noise near residential areas presents unique challenges, and some localities are unsure about their authority to address it; and
- Changes to the state’s data center sales tax exemption could address some policy concerns related to the industry.
In light of these findings, the report makes the following legislative recommendations:
- Clarify that electric utilities have the authority to delay, but not deny, service to customers when the addition of customer load cannot be supported;
- Direct Dominion Energy to develop a plan for addressing the risk of infrastructure costs being stranded with existing customers, and file that plan with the State Corporation Commission;
- Expressly authorize local governments to require and consider water use estimates for proposed data center developments;
- Expressly authorize local governments to require sound modeling studies for proposed data center developments; and
- Expressly authorize local governments to establish and enforce maximum allowable sound levels for operational data center facilities using alternative low frequency metrics and zoning ordinances.
While not a legislative recommendation, the report lays out several policy options for the legislature to consider regarding the state’s retail sales and use tax 100% exemption on data center equipment. The exemption, in place since 2010 and set to expire in 2035, is a significant factor leading to the explosive growth of data centers in the Commonwealth. These options include (1) extending the exemption to maintain industry growth; (2) allowing the exemption to expire to reduce industry growth and associated energy impacts; and (3) adjust the exemption to balance industry growth and energy impacts.
To learn more about the report, listen to the latest episode the VACo County Pulse Podcast Energy Landscape of Virginia Episode 7 | “Data Centers in Virginia” JLARC Report – Interview with Mark Gribbin
VACo Contact: Joe Lerch, AICP