Virginia is known as the data center capital of the world. Home to at least 300 data centers, with 90% of those in Northern Virginia, these facilities use large amounts of water, occupy large parcels of land and require vast amounts of electricity. Virginia’s largest utility, Dominion Energy, expects that data centers will consume more than 50% of its electricity by 2035.
A key factor in the data center industry’s growth in Virginia has been the state’s available tax exemption. Virginia was an early adopter of such a policy in 2008 and has since expanded its scope. In its current form, the conditions for the incentive are minimal and data center companies can easily claim the exemption. Last year alone, Virginia lost out on $1.9 billion in tax revenue to data center companies, including to some of the most valuable companies in the world.
Virginia should not be handing out billions in tax breaks to data centers for essentially business-as-usual practices, leaving a huge hole in the state budget. Only the best actors deserve a tax break.
Delegate Richard “Rip” Sullivan’s HB897 seeks to remedy that. Here are the main features:
To remain eligible, a data center operator must show that they are accelerating Virginia’s clean energy transition by securing energy, capacity and renewable energy certificates faster than their utility. Not only is this good for the environment and public health, it’s good for utility customers as it puts more costs onto the data center companies.
While some companies want to start building their own polluting plants to get power faster, Virginia should not give these companies a tax break for increasing local air pollution and threatening public health.
A data center must start to reduce the impacts of its backup generation, requiring certain upgrades of polluting diesel generators and also increasing the utilization of non-polluting options like batteries.
A data center must demonstrate sufficient investment in environmental management and energy efficiency measures to provide system-wide benefits.
“Virginia continues to be a leader when it comes to data centers and that’s a good thing. But the pace and scale of data center growth is already causing bills to go up, which is being compounded by utilities who want to serve data centers with new gas power plants and pipelines. If we don’t make some changes, expect your bills to keep rising,” said SELC senior attorney Nate Benforado.
For communities and data centers to coexist, the tax reform effort must be combined with efforts to increase transparency at the local and state level regarding data center impacts and to have the SCC provide early oversight of these high energy projects to ensure they do not threaten the electric system or increase bills for other customers. There are also efforts underway to establish strong “demand flexibility” programs for high demand customers like data centers, which could also provide substantial customer savings.
Not only Virginia, but the South as a whole, is experiencing a data center boom, raising concerns about how to provide energy to facilities that consume 10 to 50 times more energy than typical commercial buildings.
Without careful planning and innovative solutions, data center development and expansion will continue to increase bills, hinder the ability to meet state and federal climate goals, and provide an excuse for electric utilities in the region to invest in more methane gas plants and put off retiring coal plants.
To learn more about the Southern Environmental Law Center’s data center priorities, visit Data centers across the South — Southern Environmental Law Center.
