Data Center Boom: Legislators Push for New Infrastructure

Data Centers and the Electric Grid

The Growing Demand for Data Centers

Data centers have become the backbone of the increasingly digital world, consuming a growing share of the nation’s electricity with no signs of slowing down. The global consultancy McKinsey & Company predicts that these operations will double their U.S. electric demands from 17 gigawatts in 2022 to 35 gigawatts by 2030 — enough electricity to power more than 26 million average homes.

The massive energy consumption of data centers has a significant impact on the electric grid. From the outside, data centers can resemble ordinary warehouses. But inside, the windowless structures can house acres of computer servers used to power everything from social media to banking. The centers suck up massive amounts of energy to keep data moving and water to keep servers from overheating.

Legislative Concerns and Reconsideration

Sen. Norm Needleman, co-chair of the Senate Energy and Technology Committee, is now reconsidering details of the state incentive program as he works on legislation to study the impact of data centers on the state’s electric grid. Needleman’s concerns are centered around the potential disruption of the state’s clean energy supply, particularly with plans for a mega data center on the site of the state’s only nuclear power plant.

The developer is proposing an arrangement that would give it priority access to electricity generated at the plant, which would mean less carbon-free power for other users. “That affects our climate goals,” Needleman said. “It’s additional demand of renewable energy that we would have to replace.” Mistakes now, he said, could lead to “a real crisis.”

Comparing Data Centers to Other Industries

Compared with other employers that states compete for, such as automotive plants, data centers hire relatively few workers. Still, states have offered massive subsidies to lure data centers — both for their enormous up-front capital investment and the cachet of bringing in big tech names such as Apple and Facebook.

But as the cost of these subsidy programs balloons and data centers proliferate coast to coast, lawmakers in several states are rethinking their posture as they consider how to cope with the growing electricity demand. Nationwide, data center subsidies were costing state and local governments about $2 million per job created, according to a 2016 study by Good Jobs First, a nonprofit watchdog group that tracks economic development incentives.

State-by-State Approaches to Data Centers and Blockchain

Data Center Incentives and Regulations

States are taking varying approaches to data center incentives and regulations. Maryland and Mississippi continue to pursue incentives to land new data centers. However, in other states, the growth of the industry is raising alarms over the reliability and affordability of local electric grids, and fears that utilities will meet the demand by leaning more heavily on fossil fuel generation rather than renewables.

In South Carolina, lawmakers have started to question whether these massive power users should continue to receive tax breaks and preferential electric rates. In Virginia, home to the world’s largest concentration of data centers, a legislative study is underway to learn more about how those operations are affecting electric reliability and affordability. And Georgia lawmakers just passed legislation that would halt the state’s tax incentives for new data centers for two years.

Blockchain Regulation

Unionjournalism’s 50-State Review of Cryptocurrency and Blockchain Regulation reveals a general lack of uniformity across state-level digital asset regulation. Alabama, for instance, encompasses cryptocurrency in existing money transmission statutes, defining monetary value as “a medium of exchange, including virtual or fiat currencies, whether or not redeemable in money.” Alaska has no cryptocurrency-specific laws, but cryptocurrency is encompassed in existing money transmission statutes.

Arizona, on the other hand, has three statutes relating to blockchain. Arizona’s legislature adopted HB 2747, which appropriated “$1,250,000 for distribution to applied research centers that specialize in blockchain technology.” The state is currently considering several bills relating to cryptocurrencies, including HB 2204.

The Concerns About the Reliability and Affordability of Local Electric Grids

As the digital economy continues to grow, so does the demand for robust infrastructure to support data centers. These facilities are essential for the smooth operation of various sectors, from finance to social media. However, their massive electricity consumption poses a significant challenge to the local electric grids. According to recent studies, data centers consumed about 17 gigawatts of electricity in the United States in 2022, and projections suggest this could double to 35 gigawatts by 2030. This surge in energy demand raises concerns about the stability and cost-effectiveness of local power grids.

State Senator Norm Needleman of Connecticut has been at the forefront of this debate. His 2021 legislation aimed to attract major data centers to the state through tax breaks and other incentives. However, as the number of these data centers grows, Needleman has begun to question the wisdom of these incentives. The planned mega data center near Connecticut’s only nuclear power plant is a prime example of a project that could strain the local grid and potentially affect the state’s climate goals.

In a similar vein, other states like South Carolina and Virginia are reevaluating their approach to data center incentives. In Virginia, home to the largest concentration of data centers globally, a legislative study is underway to assess the impact of these facilities on electric reliability and affordability. The goal is to determine if the benefits of attracting data centers outweigh the potential strain on the grid and whether the current incentive programs should be adjusted.

Blockchain Regulation Across the States

The Lack of Uniformity in State-Level Digital Asset Regulation

The regulatory landscape for blockchain technology and digital assets across the United States is a patchwork of varying approaches. Without a federal framework, states have taken on the role of establishing their own rules and guidelines. The lack of uniformity often leaves businesses and individuals in a state of uncertainty regarding compliance and legal challenges. Unionjournalism has reviewed the legislative efforts in several states, including Alabama, Alaska, and Arizona, to provide insights into the current state of regulation.

Examples of States and Their Approaches to Regulating Cryptocurrency and Blockchain Technology

Alabama has integrated cryptocurrency into its money transmission statutes, defining monetary value and regulating money transmission to include virtual currencies. According to Ala. Code § 8-7A-2, any entity involved in selling or issuing payment instruments or storing value must be licensed. This encompasses major cryptocurrency exchanges such as Coinbase and Binance, which have registered as money transmitters in Alabama.

Alaska, similarly, has no specific cryptocurrency laws but aligns with federal definitions of money transmission. The Alaska Division of Banking and Securities has clarified that companies handling virtual currencies must apply for a money transmitter license. This regulatory approach is designed to ensure that all financial transactions, including those involving cryptocurrencies, are conducted with transparency and accountability.

Arizona has taken a broader stance, with specific blockchain statutes that define the technology and its applications. Arizona’s blockchain statutes are among the most comprehensive in the country. For instance, AZ Rev Stat § 44-7061 defines blockchain technology and smart contracts, treating them as valid and enforceable legal agreements. The state has also allocated funds specifically for applied research in blockchain technology, indicating a proactive approach to fostering innovation and regulatory clarity.

Practical Implications and Future Directions

The Need for a Balanced Approach to Supporting the Growth of Data Centers and Blockchain Technology While Addressing Concerns About Energy Consumption and Grid Reliability

As data centers continue to grow and expand, the need for a balanced regulatory framework becomes increasingly pressing. Data centers are a significant part of the digital economy, providing the necessary infrastructure for cloud computing, artificial intelligence, and the Internet of Things (IoT). However, their substantial energy demands cannot be ignored. In balancing the growth of these facilities with the need for reliable and affordable electricity, legislators must consider a holistic approach that includes incentives for renewable energy use, improvements to grid infrastructure, and measures to ensure sustainable practices within the data center industry.

The Role of Legislators in Shaping the Future of These Industries

Legislators play a critical role in shaping the future of both data centers and blockchain technology. The decisions they make today will have long-term implications for the environment, the economy, and the technological landscape. For data centers, lawmakers need to navigate the complex interplay between attracting businesses and maintaining grid reliability. This involves considering long-term energy sustainability, investigating innovative cooling methods, and exploring partnerships with renewable energy providers.

Regarding blockchain technology, legislators must balance innovation with regulation to ensure consumer protection and operational transparency. As states continue to grapple with the lack of a unified federal framework, regional regulatory differences can create barriers for businesses operating across state lines. Therefore, state lawmakers must work towards creating a uniform regulatory environment that supports technological advancement without stifling innovation.

The Future of Data Centers and Blockchain Technology

Industry Trends and Projections

The future of data centers and blockchain technology promises both rapid growth and significant challenges. Data centers are expected to double their current electricity demand, reaching 35 gigawatts by 2030. This growth, while indicative of the industry’s robust expansion, also highlights the need for sustainable practices. For blockchain technology, its increasing importance in various industries, from finance to supply chain management, is equally noteworthy. The technology promises enhanced security, transparency, and efficiency, making it a crucial component of future technological advancements.

Challenges and Opportunities Ahead

The challenges facing the data center and blockchain sectors are manifold. For data centers, the primary concern is the strain on local electric grids and the environmental impact. As energy demands soar, there is a pressing need to integrate more sustainable energy sources. For blockchain, the lack of uniform regulation across states creates a complex legal environment, which can be daunting for businesses. However, the opportunities are equally striking. Blockchain technology, for instance, has the potential to enhance the reliability and efficiency of electric grids by improving energy distribution and consumption tracking.

Legislative and Industry Responses

The legislative and industry responses to these challenges and opportunities are critical. As states like Georgia and Virginia consider halting or modifying tax incentives for data centers, it is evident that policymakers are recognizing the need for a more balanced approach. Georgia, particularly, has taken a step towards reevaluating its incentives, aiming to better align the benefits with the costs and challenges posed by data centers. According to John Albers, a Republican state senator from Georgia, the state is reassessing its incentives to ensure they are beneficial and sustainable.

Industry stakeholders, on the other hand, are increasingly focusing on sustainable practices. Companies are exploring alternative energy sources and innovative cooling techniques to reduce their environmental footprint. For blockchain technology, the industry is pushing for clearer and more consistent regulations to foster innovation without compromising consumer protection. Collaborative efforts between industry leaders, policymakers, and regulatory bodies are critical in shaping a future where both sectors can thrive with minimal negative impact.