Confront new constraints

‘Very limited choice’: Data centers confront new constraints

Where data centers end up is evolving as political backlash grows. Increasingly, available access to power has become a top priority for the industry.

By Kelsey Tamborrino and Francisco "A.J." Camacho

They say real estate is all about location, location, location. The prime spots for the construction of data centers are getting sparser, sparser, sparser.

For most of the digital age, a data center site was chosen primarily for its proximity to customers and speedy internet service, along with tax incentives, local building policies and the affordability of power. That’s why northern Virginia became the world’s dominant data center hub in the last two decades: nearby clients in the federal government, major internet cables crossing the Atlantic Ocean, favorable zoning, a 2018 state tax exemption and relatively cheap electricity prices.

But backlash to large data centers for artificial intelligence is rewriting the rules. Instead of ramping up tax incentives, 16 state legislatures have considered outright bans on their development. As the glut in projects strains U.S. electrical grids and voters from both parties increasingly sour on the bulky facilities, developers are rethinking what they really need.

“On balance, when we look at the industry, the primary drivers are not ones of a bounty of choice. It’s one of very limited choice,” said Ian Nieboer, who leads energy transition research at Enverus, a data analytics company.

In interviews, industry executives told POLITICO that, among those drivers, incentives and customer proximity are increasingly secondary considerations while power access and friendly neighbors are topping priority lists.

“AI has essentially flipped that question upside down,” said Tricia Martinez, CEO of Dapple, which offers AI operating software. “We’re seeing projects follow available power: where you can secure the generation, how quickly it can come online, what the transmission constraints are and whether you can build dedicated generation alongside that site.”

Electricity needs

AI models need energy-intensive servers to run them, so as AI popularity grows, plans for power-hungry data centers are growing too. Among the AI bottlenecks, the grid is “the critical path,” according to a Monday report from Goldman Sachs.

“Siting is very much an evolving landscape right now,” said Dan Diorio, executive vice president of state policy and government affairs for the Data Center Coalition, an association for the data center industry. Diorio pointed to access to available power as a key consideration for his coalition’s members, although he noted it is one of many different factors that companies consider when they decide where to site a project.

“You have so many things that fall under that, including access to the fiber lines, access to water if necessary for cooling — also the overall tax and regulatory climate, if you have the workforce as well,” he said. “Those principles still hold true. But I think it’s fair to say that the policy landscape as it continues to evolve will certainly have an effect on data center siting.”

That landscape has continued to shift ahead of the November midterms as governors and local leaders across the country reevaluate data center support in their states.

A 2025 report by consulting group Grid Strategies found data centers now account for more than half of forecast nationwide electricity demand growth over the coming five years. That’s equivalent to the consumption of New York City eight times over.

The group’s 2026 report is not yet out. Sophie Meyer, Grid Strategies’ director of power systems, said the group’s “preliminary analysis” of this year’s utility forecasts shows further increases in demand.

Grid Strategies in its 2025 analysis identified a few hot spots for new development: northern Virginia, Ohio, Pennsylvania, Atlanta, Texas, Oklahoma, Missouri and other spots in the Midwest.

But just one year later, a lot has changed on the ground. Data center growth in Ohio is consuming a U.S. Senate race, while more than a dozen local communities will vote on ballot initiatives, including bans. In Texas, Republican Gov. Greg Abbott faces a surprisingly strong Democratic challenger in state Rep. Gina Hinojosa, who has made data center development a key issue in the race.

Virginia legislators in June kept its tax incentives for data centers but decided to impose an energy tax. That reflects a new reality for developers: It’s not just that the politics are getting trickier — there are real constraints with the available resources as more and more centers come online.

“What’s happened in Texas and other markets, Virginia included, is that the amount of grid capacity that has been available is basically gone,” said Curt Holcomb, vice chair with JLL’s data center solutions team, which assists users of data centers in site selection.

The location factor

PJM Interconnection — the grid main operator for Virginia, Ohio and Pennsylvania — is on track to dip into reserves to satisfy skyrocketing power demand in 2027. Yet the region boasts another grid that’s still drawing in developers: natural gas pipelines.

PJM hosts one of the nation’s densest networks of pipelines, which projects like the $10 billion Homer City Campus in Pennsylvania plan to build offshoots from in order to fuel their own on-site power plants.

It’s emblematic of another consideration for data centers. In an age where policymakers are telling developers to “bring your own power,” proximity to natural gas pipelines and other infrastructure that can power on-site plants is also an emerging factor.

“That’s a big part of what we look for now,” Holcomb said. “It’s not only grid connections with the existing electrical transmission, but also the natural gas pipeline system so that we can tap into that to eventually build either large power plants or a smaller power installation, or generation facility for bridge power until we get that grid connection.”

Of data center projects tracked by research company Wood Mackenzie, less than one-tenth planned to include on-site generation. But those projects tended to be bigger, representing one-third of the total tracked energy capacity.

Another major factor in finding a site is receptive — or at least tolerant — neighbors, says Larry Gigerich, chair of the Site Selectors Guild, an association of site selection consultants, and founder of the consulting firm Ginovus.

“We’ll turn 25 years old early next year, and this is the highest level of NIMBYism ... that I’ve ever seen in this 25-year period,” he said. “And absolutely, it started with data center projects.”

Gigerich is seeing communities increasingly expect developers to “coinvest” in the community by sponsoring charities, health care, child care, workforce housing or make other local investments.

“Having the company doing a data center project coinvest with the community to help address those issues is an area that’s more palatable to data center companies than even going back just a couple of years ago, where they wouldn’t have thought of it, let alone be expected to do it,” he said.

The Site Selectors Guild released a report in September on how companies are deciding where and whether to build. It found that electric power and water availability ranked among the top factors driving location decisions. Site selectors also said community opposition is now a major factor for slowing or stopping projects, with data centers facing the most visible pushback of any sector in the survey.

“If the community doesn’t support the project, your timeline can just change dramatically or the projects just might not happen at all,” said Martinez of Dapple. “We’re increasingly looking at community fit at the very beginning of a site selection.”