Data Center Alley’s Power Utility Warns It May Not Be Able To Serve New Projects
The heart of the global data center industry has found itself unexpectedly short on power.
Data center developers were caught off guard this month after they were informed by Dominion Energy that the Virginia utility wouldn't be able to provide power as expected to some new data center projects in Ashburn and throughout eastern Loudoun County — delays that could last until 2026.
As first reported Thursday by Loudoun Now, Dominion is telling customers the delays stem from problems with high-voltage power lines and other transmission infrastructure. Shortly after the Loudoun Now report, analysts on Digital Realty’s Thursday evening earnings call pressed the company’s executives about what it could mean for the data center REIT.
“If this is to come to fruition as we recently learned, it will obviously be a slowdown in delivery of new supply in what is our largest and the largest and most consistently in-demand data center market in the world,” Digital Realty Chief Financial Officer Andy Power said on the call. “The dynamics are shifting in Ashburn, and they could shift quite dramatically.”
Ashburn is the home of Data Center Alley, the center of the booming global data center industry’s largest market and a vital digital infrastructure hub where data center providers and tech giants have been willing to pay high development costs to build.
There is now a great deal of uncertainty around the future of the large data center projects underway or nearing completion in eastern Loudoun County, many of which may not have power for years. Industry insiders say the power shortage took even the largest data center providers by surprise and could have a lasting impact on the world’s most important data center market.
Data center development hinges on the availability of power. Developers evaluate not just whether a local utility can generate enough energy for facilities that can use hundreds of megawatts but how quickly a developer can build the infrastructure to deliver that energy to a given site.
With seemingly endless demand for server space from so-called hyperscale tech giants like Amazon, Google and Meta, data center providers are in a race to develop quickly. Data center builders have been attracted to markets where the local utility is well-versed in the needs of data center operators and can anticipate their needs in order to deliver power quickly.
Industry insiders say Dominion has long been viewed as a reliable partner for the data center industry and a factor in why Northern Virginia has continued to serve as the hub of the data center universe. This has made the sudden announcement of a power shortage particularly jarring.
“Access to reliable energy has been a critical factor in the data center industry’s growth in Northern Virginia and Dominion has historically been an important industry partner,” Josh Levi, president of industry group the Data Center Coalition, told Loudoun Now. “The Data Center Coalition and its members are committed to working collaboratively with all stakeholders to determine a solution that ensures continued energy reliability for this critically important business sector as it grows to meet increasing demand for cloud and digital solutions from a wide range of customers.”
While there are more than 5M SF of new data center developments underway in Loudoun County, it isn't clear how many of those new facilities will be impacted by Dominion’s transmission issues. On the REIT's earnings call, Digital Realty Trust executives listed a handful of expansions and new developments in Loudoun that will likely see delays, most significantly its 200 MW Western Lands campus near Dulles International Airport.
Without enough power to go around in the months and years ahead, the question of which projects get access to the power that is brought online will carry significant consequences, Digital Realty's Power said. He said the REIT is well-positioned in that regard, with substations and other infrastructure already built at the facilities in question and a longstanding relationship with Dominion.
This sudden reduction in expected inventory in Ashburn will also drive up expected rents in Loudoun even further, benefiting companies with a high percentage of expiring leases in the next two years, Power said. But while tenants have shown a willingness to pay through the teeth in order to place servers in Loudoun County, some analysts are questioning whether higher rents and unexpected power delays will end up driving tenants to other markets, particularly neighboring counties like Prince William or Culpeper.
Despite the uncertainty, it isn't a migration that Digital Realty CEO Bill Stein expects to take place.
“I think you could see a spillover effect on a temporary basis to other parts of the United States, but I don't think you're going to see a running to other cities in Virginia, quite honestly," Stein said. “The infrastructure and networking have been in the ground and been built upon and grown upon for years and years in Ashburn. … I don't think that you're going to really be able to move this tremendous center of gravity for the data centers worldwide.”