Hyperscalers Like Google, Facebook And Amazon Zeroing In On States That Generate Clean Power

Tax breaks for data centers don’t turn heads the way they used to, according to some industry leaders. 

With the goal of luring data center business, 36 states have introduced tax incentive programs that can save buildings and operators millions. As data center firms look to their next phases of growth, proximity to plentiful and affordable renewable energy may be the bigger prize. 

At a conference hosted by BofA Securities this week, Tag Greason, chief hyperscale officer at colocation giant QTS Realty Trust, described a rapid evolution in attitudes toward renewables over the past several years. Whereas interest in renewable energy was once a “box you checked” on a request for proposals form, Greason said, renewables have become mission-critical for the largest data center players. 

“In a five-year period, you’ve seen an interest [in renewables], to a demand that I go with the hyperscaler and say to the power company, 'You guys need to figure out your power mix and regeneration, and I’m also not going to pay a premium. And if you can’t figure it out, I’m going to a state that has,'” Greason said. “I marvel at the speed that conversation has accelerated over the past five years.” 

Hyperscalers — major cloud companies like Facebook, Amazon and Google — have increasingly prioritized sites that show a “very clear nexus between power generation and delivery of power,” Greason added. Combined with financial incentives and other favorable business conditions like a strong workforce and good infrastructure, that could give some Midwestern or Southern sites a competitive edge in luring lucrative hyperscale deals. 

New Albany, Ohio, is one such location. The central Ohio city, located a short drive outside of Columbus, has attracted $4.2B in total data center investment, much of it coming from tech titans including Amazon, Facebook and Google. The city boasts 4.4M SF of data center space currently and highlights its streamlined and collaborative planning process for data centers. 

“New Albany offers a master-planned business park with technology- and shovel-ready sites prezoned for the highly specialized needs of data centers, reliable and redundant triple-feed electric capabilities, robust high-speed fiber optics ... and a strong talent pool in the region that is ranked among the top in the country,” said Jennifer Chrysler, New Albany’s director of community development. 

In the long term, regional energy deals are an increasingly important part of the data center equation, and influential, data-hungry cloud giants use their leverage to incentivize the generation and procurement of renewables like solar and wind.  

American Electric Power, based in Columbus, is one of the nation’s largest energy producers and supplies power to New Albany’s growing IT corridor, which includes numerous hyperscale sites as well as enterprise data centers. 

Last year, Google inked a long-term purchase agreement with AEP to provide power to its New Albany data center. As part of the deal, Google called for the utility to build wind and solar projects that will generate 100 megawatts over time, according to Columbus Business First. 

The energy deal was one of 18 that Google struck last year as part of what it called the “biggest corporate purchase of renewable energy in history.” The internet giant said the energy purchase deals would spur $2B in new investment in wind and solar infrastructure. 

Access to favorable energy deals is an increasingly important variable for data centers, Dallas-based CyrusOne CEO Bruce W. Duncan added at the BofA conference.

“There are certain markets where renewable energy is such that the pricing is very attractive on its own merits and not because of credits,” he said. “We’re working on a number of things, particularly in our home state.”

Texas ranks among the top states for renewable energy growth and is projected to add 14,958 MW of solar capacity over the next five years, according to the Solar Energy Industries Association. Ohio, for its part, is expected to add 1,627 MW of capacity.

“I think the states that are progressive in how they look at their [energy] generation portfolio on an economic cost basis are going to be the winners in how they attract hyperscalers to their localities,” Greason said. 

Where hyperscalers land, other data center investment often follows, creating new space and capacity in locations with the ability to accommodate. 

“That center dot, the bullseye in the middle of the country, specifically New Albany, seems to be getting a lot of attention from the hyperscale market,” Greason said. “It’s a really interesting spot.”