RICHMOND, Va.—The Virginia House of Delegates approved a bill on Tuesday to extend billions in state tax exemptions for data centers if they transition from fossil fuels to renewable energy.
The House Bill 897, led by Del. Rip Sullivan, D-Fairfax, was passed mostly along party lines. The bill is considered pivotal for Virginia, which hosts more data centers than any other state or nation, according to Data Center Map.
Virginia’s tax policy exempts data centers that invest $150 million and create 50 jobs from a sales and use tax on computer equipment. This exemption, set to end in 2035, could be extended to 2050 with more investment and job creation. In 2025, these exemptions were valued at $1.9 billion, equal to 2% of the state’s $74 billion budget.
The exemption was introduced after the 2008 crisis to boost economic activity. Sullivan emphasized the need for data centers to contribute to resolving challenges caused by their operations.
The bill, effective July 1, 2027, prohibits new data centers using fossil fuel electricity as primary power. The trend of natural gas plants for data centers is rising nationwide.
The bill mandates data centers align electricity usage with clean energy sources, replace diesel generators with non-carbon sources like batteries, and improve energy efficiency.
Current data centers have a year from the bill’s enactment to meet conditions and maintain tax incentives. Non-compliance could result in losing exemptions by Dec. 31, 2034. Negotiations for extending these exemptions are ongoing.
The data center industry contributes substantial local tax revenue and jobs, yet faces criticism for noise, water use, and increased energy demands impacting residential bills. Proposed solutions include a 944 megawatt natural gas plant in Chesterfield County, part of eight new plants by Dominion to support AI industry growth.
The Chesterfield project’s construction and operational costs could reach $8 billion, with potential health impacts from PM2.5 emissions, based on a Southern Environmental Law Center study.
Peter Anderson, from Appalachian Voices, asserted that clean energy requirements could negate the need for such plants.
Industry resistance includes reluctance to alter existing terms for centers already benefiting from exemptions, and challenges in establishing renewable projects in Virginia. Nicole Riley of the Data Center Coalition cites the exemption as a key factor in 90% of the state’s data center investments.
Another bill by Senate President Pro Tempore Louis Lucas seeks to allocate more grid upgrade costs to data centers. The House will consider it by March 14.
Sullivan’s bill’s fate in the Senate remains uncertain. A related effort by Sen. Creigh Deeds to retract exemptions failed. House Speaker Don Scott emphasized ongoing discussions, while Chairwoman Vivian Watts highlighted potential for change.
Former Governor Glenn Youngkin opposed repealing the exemption, while Governor Abigail Spanberger has not yet commented. Lt. Governor Ghazala Hashmi emphasized corporate accountability in legislative actions.
Original Story at insideclimatenews.org