Dive Brief:
- A new data center efficiency bill has been proposed in the Virginia House of Delegates, which would amend the state’s existing tax rules to require operators to meet certain energy efficiency requirements, according to state legislation records.
- The bill, HB 116, put forward by Virginia Del. Richard “Rip” Sullivan, Jr. of Fairfax County, would require data center operators to meet power usage effectiveness standards, procure carbon-free renewable energy and eliminate the use of diesel fuel to be eligible for the sales and use tax exemption for data center purchases.
- The proposal comes as the country’s largest data center market faces pressure from residents and communities in the state. The heightened attention includes legal actions, such as a lawsuit in one county, prompted by the data centers’ high energy use and expansive growth within the region.
Dive Insight:
Virginia is one of the largest U.S. data center markets, with Northern Virginia reaching “new heights in terms of operation and under development capacity” last year, according to Cushman and Wakefield’s October 2023 Americas Data Center Update report.
Despite growing headwinds for land and power availability, the report says operators continue to expand the pipeline for the market, with a 0.9% vacancy rate, an all-time low in the country, compared to a national average of 3.3% across primary markets. Cushman also pointed to growing regulatory and political pushback to data center development in certain Virginia submarkets and said new entrants must be cognizant of community sentiment on a county and municipal level.
Under the proposed HB 116 bill, data center operators would only be eligible for sales and use tax exemptions if they have a power usage effectiveness score of 1.2 or less. Facilities in buildings with other commercial uses that represent more than 20% of the building’s square footage would be required to achieve an energy efficiency level that would place them in the top 15% of similar buildings constructed in the past five years. These requirements come into effect July 1.
The bill also requires data centers to procure carbon-free renewable energy and associated renewable energy certificates from facilities equal to 90% of their data centers’ electricity requirements by Jan. 1, 2027. The bill disqualifies data centers that use diesel fuel for on-site power generation from the tax exemptions, “effectively forcing data centers seeking tax breaks to adopt [hydrotreated vegetable oil] fuel or switch to an alternative backup technology such as fuel cells,” according to Data Center Dynamics.
Additionally, the bill states that for as long as data center operators claim exemptions, they must submit annual reports to the Virginia Economic Development Partnership Authority. The annual report must include employment levels, capital investments, average annual wages, qualifying expenses and tax benefits, and a demonstration of their compliance with energy procurement and use requirements.
