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Data centers are proliferating in the United States and around the world. With our Facebook accounts, Google searches, and perhaps our dabblings in cryptocurrencies, we’re all consumers.
But does Colorado need to dangle tax breaks to attract them?
On February 29, a state legislative committee will hear a proposal to do just that. SB24-085 would exempt up to three data centers per year from state sales and use taxes from 2026 to 2034. To qualify, companies must have an assessed valuation of at least $100 million and create at least 25 full-time jobs. It would also need to create at least 3 megawatts of new electricity demand.
Critics, citing the experience of other states, see many downsides to data centers even without subsidies. All of this could cause rates for Xcel Energy and other power companies to rise even more quickly. Water demands for data center cooling also raise other questions.
Could this bill actually make it more difficult for Colorado to meet its economy-wide decarbonization goals? In New York and Montana, decommissioned coal-fired power plants have been brought back to power to power data centers.
The bill proposes that the state Economic Development Department determine who receives tax breaks. Water usage and energy efficiency will be criteria for evaluating candidates, but the bill does not provide details. It also suggests that rural areas may benefit, but does not provide a mechanism to achieve this.
“Colorado is below the threshold when it comes to attracting digital infrastructure assets,” the bill reads. “The state must encourage the development of these projects.”
Mark Gabriel, CEO of United Power, an electric cooperative that serves 110,000 meters along the rapidly industrializing Interstate 76 corridor, disputes that claim.
“The state has not had a problem attracting data centers,” he said in an email. “In United Power’s case, we have partnered with several companies that were attracted to our rates, location, and willingness to meet deadlines. Rural and remote locations may be valuable, but Colorado’s appeal is still That will be the deciding factor.”
In other words, why freeride?
Colorado has plenty of wind and solar power to meet growing demand. But as The Economist pointed out in his detailed January article, “Renewable energy and data centers are not a perfect match.”
Most data centers run by Amazon, Microsoft, and other giants require power 24/7. Utilities, which already have decarbonization targets more ambitious than nationally set standards, are working overtime to explore new strategies, including through demand-side management programs.
Long-term storage remains the holy grail of decarbonization. Solutions may be innovated right here in Colorado. Nothing is certain.
There are those who advocate nuclear power, but they are extremely reluctant to acknowledge the consistent cost overruns of test projects involving new nuclear technologies. Plus, we still don’t know what to do with the waste. It’s a can we just kick down the road.
Geothermal energy — the “underfoot heat” that Gov. Jared Polis promoted when he was president of the Western Governors Association — has the potential to produce electricity 24 hours a day. A company has reported surprising numbers from deep drilling in Nevada. In Colorado, it’s even hotter underfoot.
Currently, we are burning methane, also known as natural gas. Excel and other power companies are planning more such plants to meet peak demand. There are also some gas plants designed for baseload power generation. But building more gas plants would be a setback from decarbonization goals. Carbon capture and sequestration? Perhaps, but this raises yet another question.
Virginia is home to the nation’s largest concentration of data centers, known as the “Data Center Alley” just west of Washington, DC. Dominion, the power company that provides much of that demand, has said it wants to leave because it won’t be able to meet the state’s growing demand for power without reversing its decarbonization goals.
John Gavan spent 25 years in the software industry, working in both Colorado Springs and Washington, DC, earning seven patents along the way. He learned a lot about data centers. In recent years, he helped shape energy policy, first as a director of the Delta-Montrose Electric Power Association and then during his four-year term on the Public Utilities Commission.
“This is the absolute worst thing that could happen to Colorado,” he says. “This would not only miss our 2030 grid decarbonization goals, but could also negatively impact already stressed ratepayers.”
In his office along Interstate 76, United Airlines’ Gabriel said that instead of incentives, lawmakers could help by requiring data centers to work with power companies to control and manage loads. Maybe, he said.
Colorado needs to think about its data centers. Because data centers are coming. This proposal to dangle subsidies should be thrown in the trash.
Allen Best publishes Big Pivots, an electronic journal that uses data centers to track energy and water trends in Colorado. Visit bigpivots.com.
