Data centers drive electricity demand, raise policy questions

By EPN Staff

Virginia’s data center industry is growing rapidly, driving economic development and job creation, but it’s also straining the state’s energy grid and highlighting the importance of policy that balances reliability, affordability and sustainability. A recent report by the Joint Legislative Audit and Review Commission (JLARC) analyzed the soaring energy demands of these facilities, particularly in Northern Virginia, which hosts the world’s largest concentration of data centers.

Why it matters

Data centers are essential to the digital economy, powering everything from streaming services to cloud computing. However, their massive energy consumption poses challenges for Virginia’s electric grid. Addressing these challenges is crucial to maintaining grid reliability, keeping energy costs manageable, and meeting the state’s clean energy goals. Without strategic planning, the growing energy needs of data centers could impact other sectors and residents, particularly as Virginia transitions to renewable energy.

• About 35% of the world’s hyperscale data market is found in Virginia, giving the Commonwealth the distinction of hosting the highest concentration of data centers in the world.
• Most of the data centers are located in northern Virginia, with 25% of all reported data center operation capacity in the U.S. – and 13% in the world – hosted there.
• If the industry grows as currently projected, Virginia would need to increase the power it generates by 150%, as well as import 150% more energy from out of state. The state would also need about 40% more transmission capacity.

The bigger picture

Virginia’s position as a data center hub stems from a combination of tax incentives, proximity to major fiber networks, and a skilled workforce.

While the industry brings significant economic benefits, including billions in tax revenue and tens of thousands of jobs, its rapid expansion is outpacing energy infrastructure. Dominion Energy has warned that meeting data center demands could lead to higher costs for all ratepayers.

More details

To address the energy challenges posed by data centers, JLARC recommends greater oversight of energy planning and closer collaboration between state agencies and utilities.

Potential solutions include developing renewable energy projects dedicated to powering data centers and enhancing energy efficiency measures within these facilities. However, these efforts face hurdles, including high costs and regulatory complexities.

The report also highlights the broader implications of data center growth. Expanding transmission infrastructure to support data centers could lead to land-use conflicts and environmental concerns, particularly in rural areas. Meanwhile, Virginia’s clean energy transition – including its goal of achieving 100 percent carbon-free electricity by 2050 – could be jeopardized if the state cannot balance the energy needs of data centers with its climate commitments.