If the anticipated growth in Virginia data centers continues unconstrained, the state’s electricity consumption could nearly triple by 2040.
That’s according to a report released Monday by the staff of the Joint Legislative Audit and Review Commission, or JLARC, which provides new details to illustrate that growth forecast as well as suggestions for how state officials and electric utilities could address it.
Among its findings: Nearly all of Virginia’s projected electricity demand growth in the coming years can be attributed to data centers, and substantial investments in solar, wind, nuclear and natural gas power would be necessary to help meet that need.
“The data center industry is driving an immense increase in energy demand, and building enough infrastructure to address that demand will be difficult,” Mark Gribbin, JLARC’s chief legislative analyst, said Monday while presenting the report to the commission in Richmond.
JLARC evaluates state agencies, policies and programs on behalf of the Virginia General Assembly. Its new report is based on a year’s worth of research by multiple analysts and consultants and incorporates more than 300 interviews with data center firms, utilities, local governments, state agencies, Virginia residents and others.
Data centers are the backbone of the internet
Generally speaking, data centers are large industrial buildings with arrays of computers that power a multitude of increasingly popular online services ranging from artificial intelligence to streaming video.
“They make everything possible, from surfing the internet to swiping a credit card,” Gribbin said.
Virginia has the world’s largest data center market, most of which is dominated by four big tech companies: Amazon, Google, Meta and Microsoft. Most of the commonwealth’s data centers are in Northern Virginia but some are elsewhere, such as a Microsoft facility in Mecklenburg County.
In Pittsylvania County, officials gave the green light in July for that locality’s first data center, while a larger proposed project was withdrawn last month after meeting opposition. Meanwhile, officials in Southwest Virginia hope to attract investment at a former coal mine site that they’ve dubbed Data Center Ridge.
All of a data center’s computers — and the cooling equipment required to keep them from overheating — consume large amounts of electricity.
A small data center might require 18 megawatts of electricity at any given moment. That’s equivalent to a mid-size automobile assembly plant, 60 large office buildings or 4,500 homes, Gribbin said.
A larger data center might draw 100 or 200 megawatts of power, more than most industrial customers.
And some data center campuses, where multiple data center buildings co-locate in the same spot, are expected to consume over 1,000 megawatts.
That’s more than the 950 megawatts generated by Virginia’s largest nuclear reactor, which is one of two reactors at Dominion Energy’s North Anna power plant.
[Disclosure: Dominion is one of our donors, but donors have no say in news decisions; see our policy.]
In all, electric demand from Northern Virginia’s data centers currently totals about 4,100 megawatts.
While unconstrained data center growth could contribute to increasing Virginia’s electricity usage by 183% by 2040, the commonwealth’s electricity usage would increase just 15% during that same time period if there were no new energy demand associated with data centers, the JLARC study found.
“The takeaway here is that almost all of that demand that you see is being driven by data centers, not other things like population growth or electric vehicles,” Gribbin told the commission.
He said that 60% of that electric load growth would be in the service territories of cooperatives such as Northern Virginia Electric Cooperative rather than the commonwealth’s two largest investor-owned electric utilities, Dominion Energy and Appalachian Power.
Nonetheless, Dominion has said that its power demand is forecast to double within the next 15 years, largely due to the data centers it serves.
And because Virginia’s electric utilities and cooperatives purchase some of their power from a regional market run by PJM — the organization that coordinates wholesale electricity transmission across 13 states and Washington, D.C. — energy consumption in one utility’s territory can impact price and availability for another utility buying power from that market.
Meeting data centers’ electricity needs could be ‘very difficult’
Meeting the rising demand will require a lot of new electricity generation and transmission infrastructure, Gribbin said.
Supplying the power required by the hypothetical scenario of unconstrained data center growth would be “very difficult,” Gribbin said.
Gribbin said that to help meet the data center-driven demand, Virginia would have to add new solar facilities at twice the rate that it has this year.
Large solar projects are meeting increasing resistance at the local level. This year is expected to be the first in which Virginia state regulators issued fewer permits for new solar projects than the previous year, according to a Virginia Department of Energy review of permit data.
Solar developers have been drawn to Southside Virginia because of its relatively flat and inexpensive land, with nearly half of locally approved solar projects sited there.
But as some localities have begun rejecting solar proposals more often and changing their regulations to restrict solar development, lawmakers are considering giving state officials more authority to approve such projects, citing the need to meet the growing electricity demand as well as state-mandated clean-energy goals.
Dominion and Appalachian are required by the Virginia Clean Economy Act to reduce their reliance on coal and natural gas and achieve carbon-free energy portfolios by 2045 and 2050, respectively. Electric cooperatives are not covered by the 2020 law.
Besides adding more solar power, the commonwealth would need to add a new large natural gas plant at least every year and a half, Gribbin said.
Dominion last year proposed a new 1,000-megawatt natural gas plant in Chesterfield County, but the project has faced pushback from residents and some lawmakers concerned about its location and environmental impact.
Gribbin said Virginia would need more wind energy beyond the 2.6-gigawatt offshore project that Dominion is building and all of the utility’s future offshore wind plans.
The commonwealth also would need more nuclear power, which likely would come from small modular reactors that have not yet proven to be commercially viable and likely won’t come online before 2035, Gribbin said.
Small modular reactors, or SMRs, are designed to be smaller and cheaper than traditional large reactors, but no commercial SMR has yet been built in the United States.
Even meeting half of the hypothetical unconstrained electricity demand would be difficult and still would require new generation facilities of all of those types plus new transmission lines, especially in and around Northern Virginia, Gribbin said.
While the JLARC study found that data centers pay the full costs of their own electric service, the capital costs associated with adding new sources of power would be partly passed onto other customers.
“For example, if a utility builds a new gas plant, everyone gets charged for a portion of it,” Gribbin said. “Historically, adding a large new customer would actually reduce how much everyone pays for that plant because the new customer would pick up a bigger portion of the tab. But when we’re talking about building a new gas plant every year and a half that would not otherwise be built, it results in a major increase in fixed costs that then gets spread out over everyone.”
Furthermore, even with additional generation capacity, Virginia still would need to continue importing some power by purchasing it on the regional market.
“Those market prices fluctuate, and the more utilities buy from the market, the more susceptible they are to price spikes from things like heat waves and winter storms, and those higher energy prices get spread across all customers,” Gribbin said.
JLARC member and state Sen. Ryan McDougle, R-Hanover County, questioned whether there would be enough power on that regional market to meet future demand.
“Are other states not having increasing demand as well?” he asked.
Gribbin said that “it’s certainly in the realm of possibility” that there might not be enough energy available regionally.
State officials, electric utilities have some options
The report offers several suggestions for utilities and state officials to consider as they address the rapidly growing electricity demand.
Electric utilities could help insulate non-data center customers from rising costs by creating a new rate class specifically for data centers or by adjusting their rates more frequently.
Gribbin noted that utility rate design is “a complex and highly technical area” that isn’t easily addressed through legislation.
The State Corporation Commission, which regulates utilities in Virginia, has scheduled a technical conference for Monday to address the impact of data centers on utilities.
Data centers could participate in demand response programs, under which utilities would ask them to voluntarily reduce their usage, or deploy more energy from battery storage, during periods of high demand.
No data centers in Virginia currently participate in such programs, Gribbin said, in part because the data centers themselves don’t control how much electricity is used — their customers do.
Another possibility, Gribbin said, is for Virginia’s electric utilities to delay providing service to a proposed new data center if it would overwhelm the grid.
“You can’t say that you can’t serve someone because that would be a violation of state law,” Gribbin said. “But you can’t necessarily say well, you know, we’re just going to give you power tomorrow and collapse the whole system. … The tension is really there between the obligation to serve and the obligation to provide reliable electrical service, and the interpretation seems to be that the latter is the most priority of the priorities.”
The JLARC report recommended that the General Assembly clarify that utilities can delay service because generation capacity can’t handle a new large electricity customer, not just if the transmission network is ill-equipped for it.
State lawmakers could use Virginia’s sales tax exemption as a tool to try to adjust the growth rate of data centers.
Since 2010, qualifying data centers have been exempt from paying sales tax on computers and other equipment, an amenity that’s used by more than 90% of the industry and provided more than $920 million in savings during fiscal year 2023, according to Monday’s presentation.
Modifying that exemption or even allowing it to expire outright could slow the growth of data centers to varying degrees, Gribbin said.
Lawmakers could use that sales tax exemption to influence other aspects of data center growth such as by making the exemption contingent upon meeting standards for emissions, noise or impact on historic resources.
Besides electricity demand, the report covers other aspects of data centers, including their economic benefits and their impacts on air pollution, water usage and local residential neighborhoods. The full report is available on JLARC’s website.
Following Monday’s presentation, a Northern Virginia lawmaker called the JLARC report “a wake-up call for policymakers” and said it “highlighted the outsized energy demands and environmental footprint of data centers.”
“If we don’t act now, our energy infrastructure, environment, and local neighborhoods will continue to bear the brunt of this unchecked growth,” Del. Josh Thomas, D-Prince William County, said in a news release.
Josh Levi, president of the Data Center Coalition, an industry membership association, said in a statement that the JLARC report “indicates the need for substantial additional power generation and infrastructure to support growth and investment.”
“While we recognize that grid planning and management is ultimately the role of utilities, regulators, and grid operators, the data center industry will continue to work collaboratively with utilities, the SCC, PJM, and other stakeholders to help ensure a reliable, affordable, cleaner, and resilient electric system,” Levi said.
