Data center basics

With recent acceleration of the digital world and artificial intelligence (AI) seeing increased use in nearly every industry, there’s a growing need for data centers to manage the processing, storage and transmission of digital information.

Data centers require significant land, power and water, and communities are becoming more aware of the potential impact these massive structures have on the surrounding area. While some data centers are being built in industrial areas among existing large structures, some are being built in rural areas, taking up valuable farmland and wreaking havoc on local water and energy.

Farmers and farm communities tend to be protective of their resources. Solar and wind projects are often opposed by those who believe farmland used for such projects will never return to being farmland. Some data centers have been built in rural areas where many citizens were unaware of the plans.

What is a data center, and is it good or bad for an area? Are there long-term benefits, and who stands to gain?

Although most data centers are hard to miss due to their size, some people may not notice a data center if it’s being constructed in an industrial area surrounded by existing warehouses.

Sean O’Leary, senior researcher at the Ohio River Valley Institute, recently provided perspective on data centers and the challenges they present, starting with an explanation of Regional Transmission Organizations (RTOs) – nonprofit corporations that manage wholesale electricity markets and operate high-voltage transmission grids in specific areas. O’Leary referenced PJM, the largest RTO in the nation.

“PJM, the organization that manages the grid in our region, expects to see significant load growth over the next decade,” said O’Leary. “Currently we consume about 154,000 megawatts (MW) and they expect that number to go up to 220,000 MW – almost a 45% increase – by the mid 2030s.”

The territory under PJM includes all or portions of Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and the District of Columbia.

About two-thirds of the predicted load growth for PJM will be from data centers. Numerous older existing power plants will be retired, and some retired data centers will be replaced with new facilities. To make up for these losses, O’Leary said PJM will be constructing about 90 MW of power from the ground up.

“All of those power plants will be driving the demand for natural gas,” said O’Leary. “That is a large concern, and about two-thirds of it is specifically associated with data centers.”

O’Leary explained the various types of data centers: “Hyperscale, or enterprise, data centers are typically owned by a single company. Amazon or Microsoft owns and operates data centers. There are also co-location data centers, which are like big apartment buildings for data centers. A developer builds a data center and leases space to companies that truck in their own servers and other equipment to operate in the data center.”

It isn’t always easy for planned data centers to become reality. Hyperscale data centers occasionally cancel planned projects, sometimes due to citizen action. Co-location data centers require capital to construct the project and also need tenants. O’Leary noted that due to increasing construction costs, some planned and announced data centers may never be built.

He pointed out the difference between self-powered data centers and utility-powered data centers. “When a local utility is involved, the Public Utility Commission (PUC) is a route for advocacy,” he said. “When we hear about data centers being proposed, it’s useful if we find out more information to understand where the power is coming from – is the data center going to source it from the local utility or are they going to build their own power source? Also, is the data center a co-location center that will be looking for financing and tenants, or is it a hyperscale data center that is probably owned by one large company?”

Policymakers are often enthusiastic about data centers because they are engines for tax revenue for local government. They also promote data centers based on other benefits, including as major drivers of jobs in the data centers themselves and in downstream industries that may use data center services.

“Data centers are said to put very few demands on public services,” he said. “But if a data center is a big driver of jobs, it’s going to put serious demands on public services. If a data center doesn’t put demand on public services, it isn’t providing many jobs.”

The average data center typically only employs 30 to 50 people. “A data center doesn’t employ many more people than an Olive Garden and has about that much economic impact,” said O’Leary. “Even when data centers also require construction of a gas-fired power plant, such plants aren’t great job providers either.”

Some of the revenue generated by data centers goes to taxes, which are frequently abated, and doesn’t go to the communities that host them.

Data centers pose unique threats to utility ratepayers. O’Leary said in Pennsylvania, consumers can expect a 20% to 30% utility rate increase in the next year due to data centers.

“The cost of building data centers and power plants is skyrocketing,” said O’Leary. “That will hit local utilities. In the last 18 months, the cost to build a gas-fired power plant has tripled.”

He added that PJM conducted a study that revealed the mere expectation of a data center going into an area is causing rising costs that result in rate payers seeing higher electricity bills.

O’Leary said data centers are facing some problems, including strong opposition from citizen groups. Developers hate community opposition and avoid investing in anything they fear may be turned upside down by community opponents.

Although data center fever is currently high, O’Leary said the increasing costs to put one together will discourage some proposed data centers from being built.

“The realization that not as many data centers as are predicted will be needed puts us in a position of power to help stop construction of data centers that would be superfluous and would ultimately become stranded assets,” he said.

“There are many measures we can take to minimize the impact of data centers even when they are built,” said O’Leary. “That can be done by convincing utilities and the PUC to adopt special tariffs that force data centers to pay for more of the energy and capital costs they incur.”

by Sally Colby