Legislative report: Development of data centers could triple energy demands if unconstrained

The Joint Legislative Audit and Review Commission released its long awaited report on data centers Monday, detailing the expected soaring energy demands and large economic benefits of the industry ahead of the 2025 General Assembly session.

Residents and activists have been clamoring throughout the past year over  projections that energy demands could triple by 2040, which JLARC said could lead to a $37 monthly bill increase for Dominion Energy Virginia customers. But at the same time, the industry provides about $9.1 billion in annual activity to the economy.

According to the report, Northern Virginia is the largest data center market in the world, ahead of Beijing and London.

The report also presents three suggestions for the tax exemptions the state currently offers data centers. The exemptions could be “extended to maintain data growth and economic benefits, allowed to expire to slow growth and reduce energy impacts, or modified to balance those priorities,” explained Mark Gribbin, JLARC’s chief legislative analyst.

Following the release of the report, Youngkin, in a statement to the Mercury, signaled a desire to strengthen the industry’s presence in the state. 

“Let’s get serious, embrace common sense, growth, and opportunity, and keep Virginia winning,” Youngkin said.

The report’s modeling to meet increasing energy needs includes the use of new natural gas plants, which release climate changing emissions and harmful pollutants to the surrounding community, to provide reliable power.

“Virginia has a simple choice: embrace all of the above and deliver affordable, reliable, and, yes, increasingly clean baseload power to support future economic growth, while taking advantage of the billions of dollars in capital investment, high-paying jobs, and local and state tax revenues that come from data centers,” Youngkin said. “Or bend the knee to a green energy agenda and give away Virginia’s leadership position.” 

Energy 

The report is in line with a recent regulatory filing from Dominion Energy stating annual increases in electric power demand would be relatively flat, if it weren’t for data centers. 

Modelling from E3, a third-party consultant, showed that energy demand for the state would increase from just over 10,000 gigawatt hours in 2023 to just over 30,000 gigawatt hours by 2040, if data center development didn’t have to deal with constraints, including needing energy requirements like transmission lines to be available prior to coming online. 

Without data center development, the demand increased to about 12,500 gigawatt hours.

To meet those demands, more renewable energy facilities like solar and offshore will be needed, but so will natural gas, JLARC’s report stated, which would amount to a new plant being built every one and a half years, approximately.

Either meeting the full unconstrained demand, or half of it, relies on offshore wind and nuclear technology, which JLARC stated could come from the “unproven” small modular reactor technology. 

The percentage of costs for those upgrades that could be borne by the data center industry will be the subject of an upcoming technical conference on Dec. 16 hosted by the State Corporation Commission, which regulates Virginia’s utilities, Gribbin noted.

Water use and air pollution 

Part of the high demand for energy for data centers is the operation of the processors, but also the cooling systems, which also draw on water, depending on the technology it uses.

Gribbin said there are sufficient environmental protections in place for the facilities to use the same amount of water as a large office building, or about 6.7 million gallons per year.

“The fact of the matter is, it is still using a lot,” countered Sen. Danica Roem, D-Prince William, in an interview.

She added she’d like to provide more information to localities on water demands instead of hiding behind the shroud of “proprietary” information.

“Transparency has always been seen by the Virginia General Assembly, over the 400 years of the legislature’s existence, as an administrative burden as opposed to a requirement of government,” Roem said.

The report noted that data centers use fossil-fuel burning generators as back-up power sources, but “are a relatively small contributor to regional air pollution — in Northern Virginia, they make up less than 4 percent of regional emissions of nitrogen oxides and 0.1 percent or less of carbon monoxide and particulate matter emissions.”

In 2023, the diesel generators needed for backup power emitted only 7% of what they were allowed, which largely came from maintenance testing.  

Economic

Virginia’s data center exemption totaled about $928.6 million in savings in 2023, and went primarily to the big four tech companies, Amazon Web Services, Google, Meta and Microsoft, according to JLARC. 

The state is competing with other “primary markets” for data centers that offer tax exemptions. Those markets include facilities that amount to about 1,600 megawatts in Hillsboro, Oregon, 1,560 in Phoenix, Arizona, 1,170 megawatts in Columbus, Ohio and 1,070 mw in Atlanta, Georgia.

About 74,000 jobs a year stem from the industry; about1,500 are created during construction, in the form of concrete pourers and electricians. Once in operation, data centers employ about 50 people on site with roles including site managers, IT professionals and security personnel.

Localities around the state have benefited from the business personal property and real estate taxes. But the variations of tax incentives to lure in data centers can offset how much revenue is given to jurisdictions, and economically distressed areas with less flat land and accessibility to transmission lines may have difficulty competing, Gribbin said. 

While noting the energy costs concerns, Republican Del. Ian Lovejoy, R-Prince William suggested legislative action on data centers is inevitable in January.

“I think it’s impossible to see nothing happen,” Lovejoy said. 

“I think pragmatically you want to have pro-economic policies and certainly there’s tax revenue here,” he added.

This article first appeared on Virginia Mercury and is republished here with permission. Virginia Mercury is part of States Newsroom, a network of news bureaus supported by grants and a coalition of donors as a 501c(3) public charity. Virginia Mercury maintains editorial independence.