Highly Anticipated Report Details Virginia's Data Center Issues, Could Renew Efforts To Curb Industry

It will be nearly impossible to expand Virginia’s power grid fast enough to support unconstrained data center growth in the commonwealth, according to a report released this week by state lawmakers that may shape the future of the data center industry in its most important market. 

The highly anticipated report from Virginia’s Joint Legislative Audit and Review Commission projects that unconstrained data center development will double the state’s electricity demand within ten years, requiring an unprecedented buildout of power plants and transmission infrastructure that would be “very difficult to achieve” and likely raise energy prices for consumers. 

Earlier this year, a wave of state-level legislation was proposed to reign in data center development, but most of it was punted until the 2025 legislative session so lawmakers could consider the findings of this JLARC report, industry players told Bisnow in March. 

Commissioned in January, the report was designed to be a definitive analysis of both the data center industry’s economic impact in Virginia and the adverse energy and environmental impacts that have come with the industry’s growth. 

While the report offers a menu of specific policy recommendations, its broad intent is to provide a common set of facts and data to frame legislators’ decisions regarding data centers. Its publication likely paves the way for lawmakers to renew their efforts to curb data center development at the global capital of digital infrastructure. 

Del. Ian Lovejoy, a Republican representing Prince William County, told the Virginia Mercury after the report's release that the introduction of data center legislation in January is inevitable. 

"I think it's impossible to see nothing happen," he said, according to the publication. 

Virginia, particularly Northern Virginia, is by far the world’s largest data center market, with around 340 individual data centers built on over 7,200 acres. Data centers in Virginia use around 5,050 megawatts of power, roughly equivalent to the combined electricity needs of 60% of households in the commonwealth.  

The industry’s rapid growth over the past four years, accelerated by Big Tech’s artificial intelligence arms race, has pushed data center development beyond the borders of its traditional Northern Virginia hubs like Loudoun County and into suburban and rural areas that previously had little in the way of data centers or other industrial infrastructure.

The result has been a wave of organized pushback that has stalled projects, determined elections and ultimately led to a wave of proposals at both the state and local level to control or slow the pace of the industry’s growth.

While the report’s analysis addressed concerns ranging from the effectiveness of data center tax breaks to the impact of noise from data centers on residential communities, its most striking conclusions detailed the massive scale of investment in energy grid infrastructure that would be needed to support the data center industry’s desired expansion in the state.  

Meeting the needs of just half of that projected demand would be enormously difficult for utilities and the state to pull off, the report’s authors say.

Under current environmental guidelines, solar would need to be added twice as fast as it is being developed, while the wind generation required exceeds the combined capacity of the entire offshore development pipeline. Even if environmental mandates were disregarded, a new 1,500-megawatt gas power plant would have to be built every two years for 15 consecutive years.

This scale of infrastructure buildout would also raise electricity prices for consumers. While the report concludes that Virginia’s data centers are paying their fair share for power today, the sector’s growing electricity needs could raise residential rates for Dominion Energy customers by as much as $37 per month by 2040. 

In addition to providing a snapshot of the data center industry’s impact and trajectory in Virginia, the report also provides specific recommendations and policy options for lawmakers. Among them, the study’s authors recommend that the legislature require Dominion Energy to file a plan outlining how it will protect consumers from price increases stemming from the data center industry’s growth, and that data centers be classified as their own consumer class with targeted rates that ensure other consumers are insulated from potential price increases. 

They also suggest mandating data centers’ participation in “demand response” programs, in which data centers would reduce their power consumption at the behest of utilities when high energy demand is threatening grid stability. No data centers currently participate in such initiatives in Virginia. 

The report urges lawmakers to leverage the state’s data center sales and use tax exemption as a policy tool. The exemption, which can save data center users hundreds of millions of dollars in tax burden on the computing equipment housed inside the facilities, is set to expire in 2035 and would likely need to be extended well before then. Ending the exemption would likely slam the breaks on data center buildout in the state. But the report’s authors explore the possibility of extending the tax break with provisions tying a data center’s eligibility to conditions like meeting energy efficiency or carbon reduction standards.  

With the report’s findings set to frame the coming debate over the data center industry’s future in Virginia, both advocates for and opponents of the industry’s growth are already pointing to its findings as supportive of their positions.

Industry advocacy group Data Center Coalition highlighted the economic benefits of data center growth outlined in the study, pointing to findings that data centers accounted for 84% of capital investment tracked by the state and as much as 31% of tax revenue in some counties. 

“The study validates Virginia’s leadership in attracting and nurturing this dynamic, critical industry over the past 15 years,” Data Center Coalition President Josh Levi said in a statement. “The report recognizes that the data center industry continues to make substantial contributions to communities across the Commonwealth – from capital investment and stable, well-paying jobs to state and local taxes that help fund important civic priorities like education, public safety, and transportation.”

Conversely, the Coalition to Protect Prince William County, one of the leading groups fighting the proliferation of data center development in the state, hailed the study as largely vindicating their position that the benefits of the industry’s growth aren’t worth the repercussions. 

“It has been our relentless pursuit of accountability and justice that has culminated in the non-partisan objective truth of the JLARC report,” the group wrote in an email to supporters. “Here is what stood out to us: That the risk vs the benefit of industrializing Virginia -- not only specific communities that suffer the greatest loss of quality of life, but the burden to us all -- comes at too high a price, literally and figuratively.”