Building enough infrastructure for unconstrained data center demand in Virginia “will be very difficult and meeting half that demand is still difficult,” a recently released report concludes.
The report was released in December by the Virginia Joint Legislative Audit and Review Commission. JLARC conducts program evaluation, policy analysis, and oversight of state agencies on behalf of the Virginia General Assembly.
In 2023, JLARC directed staff to review the impacts of the data center industry in Virginia.
Northern Virginia is the largest data center market in the world, constituting 13 percent of all reported data center operational capacity globally and 25 percent of capacity in the Americas.
Multiple factors have contributed to Northern Virginia’s market prominence, including a strong fiber network, supply of reliable cheap energy, available land, proximity to major national customers, and the creation of a state data center tax incentive.
The data center industry is growing rapidly in Virginia, both in established markets and newer ones.
Grid Challenges
Building enough infrastructure for unconstrained data center demand will be very difficult and meeting half that demand is still difficult, the report said.
An independent model of the energy grid commissioned by JLARC staff found that a substantial amount of new power generation and transmission infrastructure will be needed in Virginia to meet unconstrained energy demand or even half of unconstrained demand.
Building enough infrastructure to meet unconstrained energy demand will be very difficult to achieve, with or without meeting the Virginia Clean Economy Act (VCEA) requirements, it said.
New solar facilities, wind generation, natural gas plants, and increased transmission capacity would all be required to meet unconstrained demand, and the number of projects needed would be very difficult to achieve.
For example, new solar facilities would have to be added at twice the annual rate they were added in 2024, and the amount of new wind generation needed would exceed the potential capabilities of all offshore wind sites that have so far been secured for future development.
Large natural gas plants would also need to be added at an equal or faster rate than the busiest build period for these facilities (2012 to 2018), depending on VCEA compliance, the report said.
Building enough infrastructure to meet half of unconstrained energy demand would also be difficult, the report said.
If VCEA requirements were not considered, the biggest challenge would be building new natural gas plants, it added.
New gas would need to be added at the rate of about one large 1,500 MW plant every two years for 15 consecutive years, equal to the busiest period of the last decade (2012 to 2018).
“If it is assumed that VCEA requirements would be met, the biggest challenges would be building enough wind, battery storage, and natural gas peaker plants. Wind generation needs would be the same as the unconstrained demand scenario.”
The amount of new battery storage would be several times the small amount currently in place in Virginia and a significant number of new natural gas peaker plants would have to be constructed.
The state “could encourage or require data centers to take actions to help address their energy impacts by promoting development of renewable energy generation, participating in demand response programs, and managing energy efficiency. However, these actions would have only a marginal impact on decreasing data center energy demand.”
Benefits of Data Centers
The report also details the benefits that can flow from data centers.
“Data centers provide positive benefits to Virginia’s economy mostly because of the industry’s substantial capital investment. The primary benefit comes from the initial construction of data centers. Most construction spending likely remains in the state economy because much of it goes to Virginia-based businesses providing construction materials and services.”
Overall, the data center industry is estimated to contribute 74,000 jobs, $5.5 billion in labor income, and $9.1 billion in GDP to Virginia’s economy annually.
Most of these economic benefits derive from the construction phase rather than data centers’ ongoing operations.
The economic benefits from the industry are concentrated in Northern Virginia, where most data centers are located, but other regions of the state also benefit because data centers are also located there, or they are home to businesses that provide materials for data center construction.
Localities with data centers can collect substantial tax revenues from the industry, primarily from business personal property and real property (real estate) taxes, the report noted.
The amount of local data center revenue depends on several factors, such as the size of their data center market and local tax rates. “Some localities have greatly reduced their business personal property tax rates for computer equipment to try to attract data centers, but this also reduces the revenue they can collect from the industry. For the five localities with relatively mature data center markets, data center revenue ranged from less than 1 percent to 31 percent of total local revenue.”
Recommendations and Policy Options
The report also includes a number of recommendations and policy options for further consideration.
With respect to legislative recommendations, the report said, among other things, that the Virginia General Assembly may wish to consider amending the Code of Virginia to:
- Clarify that electric utilities have the authority to delay, but not deny, service to customers when the addition of customer load cannot be supported by the transmission system or available generation capacity;
- Expand the Accelerated Renewable Buyers program, which allows large customers of energy utilities to claim credit for purchases of solar and wind energy to offset certain utility charges, to also allow customers to claim partial credit for purchases of capacity from battery energy storage systems based on the current PJM electric load carrying capacity rating.
- Require that utilities establish a demand response program for large data center customers and to require that these customers participate in the program.
- Direct investor-owned Dominion Energy to develop a plan for addressing the risk of generation and transmission infrastructure costs being stranded with existing customers and file that plan with the State Corporation Commission as part of its biennial rate review filing or as a separate filing.
