overview:
– Tax breaks for data centers are being considered in Michigan, but advocacy groups in Virginia say the facilities would undermine the state’s climate change plans.
– Industrial generators associated with the facility also pose a threat to air quality and could exacerbate ozone problems in southern Michigan.
– Supporters argue state approval is necessary to ensure the data centers don’t threaten climate goals or increase energy costs for ratepayers.
Environmental groups in Michigan are sounding the alarm over proposed tax incentives for tech companies such as Google and Microsoft to build large data centers in the state, which they say would use so much water and energy that it would effectively undermine the state’s climate plan.
To understand what the bill means, Michigan needs to look to Virginia, home to Loudoun County’s “Data Center Alley,” where more than 4,000 backup diesel generators threaten to pollute the air in the event of a blackout and where utility Dominion Energy is considering keeping coal-fired plants running and adding gas generation to meet electricity demand.
“I don’t think anybody expected this to become as big an issue as it has,” Julie Bolthouse, land use director for the nonprofit Piedmont Environmental Council, told Planet Detroit, noting that the state has offered tax breaks for years, and that the Virginia General Assembly first implemented statewide incentives in 2008.
“We’ve seen an explosion in demand due to the pandemic and the shift to remote work, as well as AI and cryptocurrency,” she said.
Virginia is currently home to about 300 data centers, whose electricity demands are jeopardizing the state’s goal of decarbonizing its energy grid by 2045. These buildings are the size of football fields and house millions of servers that make the internet work. By 2030, these facilities could use up to 9% of the total electricity generated in the United States.
In Michigan, data centers could thwart a 2023 bill that aims to get 100% of the state’s electricity generation from renewable energy by 2040. The bill includes an “off-ramp” provision that would allow coal- and gas-fired power plants to keep operating if there isn’t enough generation to meet demand.
Meanwhile, diesel and natural gas generators risk polluting the air in southern Michigan, where ozone is a major threat. Communities like Benton Harbor hope to benefit from increased property taxes from a data center, but supporters worry the facility’s water and energy demands could increase residents’ utility bills.
“The last thing we need is higher utility bills and worsening air quality,” said Christy McGillivray, legislative and political director for the Michigan chapter of the Sierra Club.
Diesel generators may be hurting Michigan’s ozone problem
While many industrial facilities have backup generators, their use in data centers that operate 24 hours a day is of particular concern, Bolthouse said.
“These data center facilities use more generators than any other facilities that I know of,” she said, adding that each Virginia building has about 25 generators the size of train cars that start up automatically in the event of a power outage.
Diesel generators can emit pollutants such as carbon monoxide and nitrogen oxides that contribute to the buildup of the ozone layer, making their use particularly problematic during the summer months when ozone pollution is most prevalent and electricity demand is particularly high.
Currently, facilities only run generators during maintenance or outages, but last year the Virginia Department of Environmental Quality proposed an exemption that would allow data centers in several Northern Virginia counties to run generators longer and more frequently from mid-March through July, when regional grid operator PJM issues warnings about strain on the power grid.
Bolthouse said the proposal would mean increased pollution from diesel engines. By allowing these generators to help meet electricity demand on high-demand days, the change would put additional strain on the power grid, with many recently built or under construction data centers waiting for power supplies to come online. Following public outcry, DEQ withdrew the proposal.
Michigan’s power reliability issues could prompt the use of backup generators, but the state’s power grid is currently less strained than Virginia’s. Michigan’s regional operator, MISO, has received only one “maximum generation emergency” warning, indicating the grid is nearly full, since 2006, according to Matt Helms, a spokesman for the Michigan Public Utilities Commission. The PEC found that Virginia has received more than 100 warnings between 2019 and 2022.
But the data center deployment could add to the strain already placed on Michigan’s power grid: Michigan also has the second-highest number of power outages between 2011 and 2021, affecting more than 50,000 customers, and has experienced incidents that could prompt the use of generators.
Michigan industrial facilities can use gas, diesel or dual-fuel generators as backup power during power outages, said Jill Greenberg, spokeswoman for the Michigan Department of Environment, Great Lakes and Energy. If the data center is in southern Michigan, the generators could exacerbate already high ozone and particulate pollution in some counties.
Benton Township, for example, has been proposed as the site of a data center that local leaders say could bring $21 million in annual property taxes to the area. But Berrien County, home to Benton Harbor and St. Joseph, is missing ozone protection marks, along with parts of several other counties in western Michigan.
Michigan data center deal could undermine state climate plans
In Virginia, some have argued that by signing the data center contract, Dominion Energy will determine the state’s energy future.
Like Michigan’s clean energy bill, Virginia’s plan includes an “escape clause” that would allow utilities to build more fossil fuel plants if they can’t meet demand.
Data centers accounted for 24% of Dominion’s energy sales in 2023, according to its financial filing. The company says it is receiving requests for data center campuses that require several gigawatts of power. This is equivalent to the energy output of a large power plant. This is consistent with a proposal to build a new natural gas “peaker” power plant in Chesterfield County, Virginia, that would operate when energy demand is high.
Through its contracts with data center customers, “Dominion is effectively determining Virginia’s energy future,” Nate Benforad, a senior attorney at the Southern Environmental Law Center, wrote in an op-ed. He said it makes sense for the State Corporation Commission, which regulates public utilities, to review large projects that may require building power plants. Dominion did not respond to Planet Detroit’s request for comment on the matter.
A similar approach is needed in Michigan, according to Amy Bandyk, executive director of the nonprofit advocacy group Citizens Utility Commission of Michigan. Currently, utilities are only required to publish an integrated resource plan every four years that outlines how the utility will meet customers’ electricity needs. Bandyk said the process doesn’t allow for the large, sudden increases in demand from data centers to be assessed.
She said the new process is needed to ensure big projects don’t increase costs for all customers or make it harder for Michigan to meet its clean energy goals.
Politicians focus on revenue, advocates insist on looking at the bigger picture
Support for data center tax breaks remains strong in some quarters, even though progress on the bill was halted ahead of the Michigan Legislature’s summer recess.
DTE Energy CEO Jerry Norcia said on an investor call in July that Michigan is a good location for data centers because of the state’s abundant water that can be used to cool the facilities and its low industrial energy rates. “The governor has indicated a strong willingness to sign these bills when they reach his desk,” he said.
Some lawmakers considering raising local property taxes have strong incentives to support the Michigan bill: Data centers don’t create many jobs, but Loudoun County, home to many of Virginia’s facilities, is set to receive more than $581 million in property taxes from data centers in 2023.
State Sen. Kevin Hertel, one of the sponsors of the Michigan data center bill, said the bill would raise local tax revenue to fund roads and schools. He did not answer questions about efforts to amend the bill, but previously told Planet Detroit that amendments would spare consumers the burden of paying for the maintenance and construction of gas-fired power plants that power data centers.
Hertel also released a draft bill that includes a provision that would require data centers to connect to municipal water systems that use surface water, a move that some environmental groups support because they worry about reduced groundwater pumping, but which could lead to higher bills for other water customers.
Bolthouse said data centers can be developed while adhering to climate goals and other environmental priorities, and could require companies to source their energy needs locally from renewable sources and battery storage 24/7. Michigan should also plan for any transmission infrastructure that may be needed and provide full transparency about the facilities’ energy needs, he said.
“If you only look at the taxes collected and don’t have all the facts, you don’t see the whole picture,” she said.
