Since the beginning of the year, more than one dozen separate pieces of legislation intended to limit where and how data centers are built and operated have been filed across Virginia at both the county and state levels.
While it’s possible that none of these bills will ever become law, the growing volume of proposed regulations reflects the increasingly hostile political landscape data centers face in Northern Virginia. A dwindling supply of developable land and available power from utilities has already made large-scale data center projects in the region more challenging than ever.
The added potential for new hurdles and restrictions and the suddenly uncertain regulatory landscape could have developers looking for greener pastures.
“It’s not going to stop the data centers from coming, but it’s going to make it more difficult,” Jennifer Reininger, Senior Development Manager at Yondr Group, said at Bisnow’s National Data Center Construction, Design and Development summit last month. “You’re going to have to get a little more creative, and you’re going to have to make sure that you are reaching out to these local communities.”
With Virginia at the center of a global data center building boom, county governments are considering zoning changes to give themselves more control over where these facilities can be sited. Even Loudoun County, home of “Data Center Alley” and considered the hub of the digital infrastructure universe, is considering eliminating by-right zoning for data centers entirely.
At the state level, legislators from data center development hotspots have introduced a barrage of bills that would do everything from banning diesel backup generators and prohibiting projects near historic areas to mandating developers disclose their power and water consumption.
In February, Loudoun County’s Board of Supervisors raised eyebrows across the data center sector by voting to explore zoning changes that could give county officials far more control over where and how data centers are built.
The most significant change being considered is the elimination of all by-right zoning for data centers. This means that every data center project would need to be individually approved by county lawmakers, effectively stripping entitlements from properties zoned for data centers that have fetched huge premiums from developers.
Although Loudoun’s political climate over the past 20 years has been famously friendly towards the data center industry, the political will to further regulate data center development has grown steadily in recent years as the market has become saturated.
Still, the proposed zoning changes took the industry by surprise. They were also a surprise to the county’s own economic development staff, which had not been informed about the planned revision process ahead of time.
The process of rewriting data center zoning is expected to take at least 15 months, county officials say. But both industry insiders and some Loudoun officials say just launching the process sends an immediate message to developers that new data center projects will be met with skepticism by a critical mass of local politicians.
“We need to be careful,” Loudoun Supervisor Caleb A. Kershner told the board last month. “The idea that we’re going to micromanage this whole process sends a message to the data center industry that they’re not wanted.”
Loudoun’s zoning bill came just two months after similar measures to limit data center growth were passed in neighboring Fauquier County. The Fauquier Times called the wide-ranging regulations and development guidelines “one of the “strictest in Northern Virginia—and possibly the entire state.” Lawmakers in Stafford and Fairfax counties are also considering enacting similar rules to manage data center buildout.
A growing number of state lawmakers have also set their sights on the data center industry, with 13 different data center-focused bills filed in Richmond since the start of the year during the legislative term that concluded Saturday.
The legislation setting off the loudest alarm bells within the data center industry is a House bill filed by Fairfax County Delegate Rip Sullivan that would require data centers to meet a specific energy-efficiency standard to be eligible for a state tax exemption that is critical for almost every data center project in Virginia.
While experts say the mandated efficiency benchmarks would be difficult for many data centers to meet, concern from developers has centered around language in the bill that would effectively ban diesel backup generators – an integral element of a mission critical data center that currently has no widely available alternative. Banning diesel generators, industry insiders say, will effectively force developers to build elsewhere.
“It’s a little scary,” said Jim McDonald, co-founder of data center generator supplier Miratech. “Basically, it’s outlawing diesels on site … so there’s going to be pushback on that.”
Consideration of the Sullivan bill, along with the bulk of the data center-focused legislation proposed since the start of the year, has been postponed until the 2025 legislative session. The timeline is meant to coincide with the publication of a report by the General Assembly’s Joint Legislative Audit and Review Commission on the overall impact of the data center industry in Virginia and state and local policies that affect it. Lawmakers reportedly want decisions on data center regulation to be informed by this study.
Other bills punted to 2025 propose a range of new limitations and requirements for data center developers or the municipalities where such projects have been proposed. These include measures to ensure that data centers aren’t driving up utility prices for other ratepayers, mandating disclosure of data centers’ water and power consumption and placing limits on how close data centers can be built to parks and places of historic and cultural significance.
Even if only some or none of these laws come to fruition, the uncertainty created by the pending legislation is changing the math for developers when it comes to siting projects in Northern Virginia.
In an industry with massive upfront capital requirements and development timelines that span the better part of a decade, data center firms are more inclined to shy away from markets where they have to navigate a regulatory landscape that is shifting under their feet.
“Certainty is incredibly important for all businesses,” said Josh Levi, president of the Data Center Coalition, an industry advocacy group. “But given the magnitude of capital investment with this industry, long term planning is going to be a differentiator in markets.”
This uncertainty is likely to have an immediate impact on land values in Loudoun County, where developers have been willing to pay huge premiums for parcels that allow data centers by-right. Now, Loudoun County Economic Development Executive Director Buddy Rizer acknowledges that data center firms are unlikely to shell out huge sums for entitled land when those entitlements could be stripped away within two years.
‘I’ve always said that the biggest enemy of business isn’t competition, it’s uncertainty,” Rizer said. “It’s now making major investments in the county challenging. We’re working to reduce the uncertainty that’s inherent in any major legislative process like the ones we’re going through.”
The flood of proposed regulation also reflects a shifting political climate for data centers in Virginia, as the once-obscure industry increasingly finds itself at the center of political debate and public scrutiny in parts of the state.
Unsurprisingly, every piece of data center legislation filed this year was introduced by lawmakers representing parts of Loudoun, Prince William and Fairfax counties with the highest densities of data centers or where digital infrastructure development has exploded in the past 24 months.
As the growing number of large-scale data center projects have generated backlash from residents, these counties have seen data center development emerge as an above-the-fold political issue that can move the needle in local elections.
This dynamic has played out most prominently in Prince William County, where a massive data center development area known as the PW Digital Gateway is slated to turn a largely rural and residential area near the Manassas National Battlefield into the world’s largest data center corridor. The project sparked passionate and organized opposition, becoming the central issue in local elections that saw incumbents supportive of the Digital Gateway ousted by vocal data center opponents.
As Bisnow has reported previously, this hostility has been something of a rude awakening for data center developers, who until recently faced little public scrutiny and were typically welcomed with open arms by municipalities eager for the tax revenue these buildings typically bring with them.
“Five years ago, we had counties bidding against each other to bring us in,” Yondr’s Reininger said. “It wasn’t just tax incentives, sometimes they were offering to build us a substation. But things are changing, and communities are not happy with data centers coming in and taking over.”
As a whole, the data center industry has been slow to react to these shifting political winds, with developers routinely struggling to navigate the increasingly hostile landscape in key markets. But many of the industry’s largest players have begun changing their approach in recent months, pouring more resources into political advocacy and other efforts to win hearts and minds. Advocacy groups like the Data Center Coalition have scaled up and added staff.
But the Data Center Coalition’s Levi insists it is important for the industry to engage with lawmakers at both the local and state levels proactively and not on a project-by-project basis. The data center business is complicated, and Levi says it is crucial to help lawmakers understand what’s driving developers’ decision-making before they’re faced with a project that draws pushback from their constituents.
“This industry needs to do a better job of talking about what it does, how it does, why it does and where it does,” Levi said. “That requires alignment and a consensus voice, and that’s really where we’re leaning in right now.”