Data Centers: Why Location Matters for Energy Impact
Explore how data center locations affect energy grids and local economies, especially in key states like Pennsylvania and Virginia.
Where you build a data center matters as much as whether you build one at all.
That's not a philosophical point — it's an operational reality with billions of dollars and entire regional power grids hanging in the balance. As hyperscalers and colocation providers race to meet surging demand from AI workloads, cloud expansion, and streaming infrastructure, site selection has become one of the highest-stakes decisions in American infrastructure development. Get it right, and you anchor a regional economy for decades. Get it wrong, and you stress a grid that wasn't built to absorb that kind of load — leaving ratepayers and neighboring communities to absorb the consequences.
The tension playing out right now in states like Pennsylvania and Virginia puts that tradeoff in sharp relief.
Understanding Data Center Location Choices
Data center developers evaluate sites against a tight cluster of variables: power availability, fiber connectivity, land cost, water access for cooling, seismic risk, and tax incentives. In practice, power availability is almost always the deciding factor — a modern hyperscale campus can draw anywhere from 100 MW to over 1 GW, numbers that would stress the distribution infrastructure of most mid-sized American cities.
That's why developers gravitate toward regions with surplus generation capacity, favorable interconnection queues, and utilities willing to negotiate. It's not enough to find cheap land — you need land where the electrons can actually get to you at scale, at a cost that doesn't destroy your unit economics.
Fiber convergence points matter too. Data centers aren't islands — they're nodes in a global network, and latency is real money. Proximity to major internet exchange points (IXPs) and submarine cable landing stations influences site decisions more than most outsiders realize. That's part of why Northern Virginia became the dominant data center market on Earth: it sits at the intersection of federal government connectivity needs, Atlantic cable infrastructure, and decades of private investment in network density.
The problem is that market concentration creates its own gravity. Developers keep building where other developers have built, reinforcing infrastructure that's already strained.
The Economic Benefits of Data Centers
The economic case for hosting data centers is genuinely compelling — and local governments know it. A single large-scale data center campus can generate hundreds of construction jobs during the build phase, followed by a smaller but highly skilled permanent workforce in operations, security, and technical maintenance. Property tax revenue starts flowing before the facility is even fully operational.
Virginia's data center industry alone contributes billions in annual economic activity, making it one of the clearest examples of how infrastructure investment can reshape a regional economy.
Pennsylvania has watched this play out across the state line for years and wants a piece of it. The incentive packages being assembled — tax abatements, expedited permitting, utility rate negotiations — reflect how seriously state economic development offices take data center recruitment. For rural or post-industrial communities looking for a stable, high-value tax base that doesn't require a massive labor force, data centers look almost too good to be true.
Sometimes they are.
The Impact on Local Energy Grids
Here's the part that often gets buried in the press release celebrating a new data center announcement: the economic benefits accrue locally, but the grid stress radiates outward.
When a data center connects to the grid, it doesn't just draw power from its immediate neighborhood — it affects load balancing, transmission capacity, and reserve margins across a regional network. In PJM Interconnection territory, which covers much of the Mid-Atlantic and Midwest including both Pennsylvania and Virginia, the queue for new large load interconnections has become a years-long bottleneck. Utilities are struggling to build out transmission fast enough to keep pace with demand.
The core problem is this: a state can capture the tax revenue from a data center while the grid reliability consequences get distributed across every ratepayer on the regional network — including people in states that never saw a dime of that economic benefit.
This is an underappreciated structural issue in how data center development is currently governed. Interconnection studies, cost allocation for transmission upgrades, and reliability planning are managed at the regional grid operator level — not the state level. So when Pennsylvania or Virginia approves a new data center development, the full cost-benefit calculation doesn't appear on any single desk. It's fragmented across utility commissions, grid operators, and ratepayer advocacy groups who rarely coordinate in real time.
From an insider perspective: grid operators like PJM have started flagging large new load requests with significantly more scrutiny than they did five years ago, precisely because the cumulative effect of data center growth has started showing up in reliability modeling. This isn't hypothetical — it's showing up in interconnection study delays and capacity auction dynamics.
Pennsylvania and Virginia: Two Markets, One Grid Problem
Virginia's Loudoun County — ground zero for global data center density — is a case study in what happens when development outpaces infrastructure planning. The county has imposed temporary moratoriums on new data center approvals in certain corridors, not because the economic case disappeared, but because Dominion Energy couldn't guarantee reliable service to new facilities without transmission upgrades that were years away from completion.
Think about that for a moment. The world's most data-center-intensive market hit a hard wall — not from lack of demand, not from lack of capital, but from basic grid physics.
Pennsylvania is at an earlier stage of that same curve. The state has genuine advantages: lower land costs than Northern Virginia, available industrial sites with existing power infrastructure (former steel mills, manufacturing facilities), and proximity to major fiber routes. Economic development officials have been aggressive in positioning Pennsylvania as the logical "relief valve" for data center demand that can no longer be absorbed in Virginia.
But if the data centers migrate to Pennsylvania without coordinated grid investment, the commonwealth captures the ribbon-cutting and the tax revenue — while PJM manages a new load concentration problem on an already-stressed transmission network.
The projected economic impacts from Pennsylvania data center development are real. So are the infrastructure obligations that come with them. Treating those two facts as separable is where developers and policymakers tend to get into trouble.
Strategic Recommendations for Developers
Site selection for data centers in 2025 and beyond requires a level of grid literacy that most real estate and development teams don't traditionally carry. A few principles that separate sophisticated developers from those who will hit walls mid-project:
Start with the interconnection study, not the incentive package. Tax abatements mean nothing if you're 47th in the PJM interconnection queue with a five-year wait time. The first due diligence question for any site should be: what is the realistic timeline to energization at the required capacity, and what transmission upgrades are required to get there?
Engage with the utility early and often — not just through the formal interconnection process, but at the relationship level. Utilities have discretion in how they prioritize and structure load service agreements. Developers who treat utility engagement as a checkbox rather than a strategic partnership consistently encounter delays that could have been anticipated.
Consider co-locating with generation assets. The fastest-growing segment of data center development involves campuses that pair compute infrastructure with dedicated power generation — solar, gas peakers, or increasingly, small modular reactors (SMRs) in the planning phase. This isn't just about hedging energy costs; it's about removing yourself from the interconnection queue problem entirely by bringing your own electrons.
Long-term planning needs to account for where grid investment is actually flowing, not just where the incentives are richest today. States and utilities that are investing seriously in transmission upgrades and grid modernization will be better hosts for data centers in 2030 than states offering large tax breaks on a constrained grid.
The broader story here isn't that data centers are bad for local economies — they're clearly not. The story is that the economics of data center development and the engineering of energy infrastructure are increasingly inseparable, and treating them as separate problems produces predictably bad outcomes. Pennsylvania and Virginia are at the center of a regional buildout that will shape American computing infrastructure for a generation. The developers, utilities, and policymakers who understand both sides of the ledger — the tax revenue and the transmission constraints, the economic wins and the grid obligations — will make better decisions than those who only see half the picture.
The electrons always have the final word.
[CONSIDER CUTTING]: The paragraph discussing the economic benefits of data centers could be tightened for brevity.
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