By: Mike Jacoby, Director of Economic Development, Bricker Graydon LLP [1]
Punching well above its weight, Ohio has become a leading state for data centers. Currently, DataCenterMap.com reports that Ohio is ranked fourth in the country for its volume of data centers, trailing only Virginia, Texas and California. With 172 data centers, Ohio has more data centers than neighbors Pennsylvania, Michigan and Indiana combined. [2]
Factors including favorable tax policies, like Ohio’s data center sales tax exemption, a robust electric grid with cooperative utilities, and communities eager to diversify their economies are all contributing to the growth of data centers.
Within Ohio, Central Ohio leads the state with 104 data centers, many of which are hyperscale data centers by household names like AWS, Google and Meta. Other recent companies to announce projects in the region include Cologix, QTS Data Centers and Vantage Data Centers.
But data centers are big power consumers, and their energy appetites are growing because of the expectations tied to artificial intelligence (AI). AI, by some estimates, requires ten times the amount of energy as a traditional search engine query, and Goldman Sachs reports data center power demand will increase by 160% by 2030. [3] In Ohio, AEP states that the electric demands are increasing by 10 times the historic growth rate and that the utility company has signed agreements that will nearly double the load that it serves in five years. [4] Columbus Business First has reported that AEP has stopped signing new service agreements because of capacity constraints and that the utility has a queue of more than 50 customers, mostly data centers, wanting more than 30,000 megawatts of power. [5]
Data center developers are identifying suitable sites in communities all across the Buckeye State. Smart economic developers and community leaders would be wise to educate themselves on the benefits and costs of data centers.
Some observations about the opportunities provided by data centers based upon public information regarding recent transactions include:
- Data centers typically represent an investment of hundreds of millions of dollars, temporarily creating hundreds or even more than a thousand construction jobs and a long-term source of real property taxes.
- Data centers are lightly staffed but average wages tend to be high, often at or near six figures.
- Data centers may be able to pay market rate prices for land, rather than seeking discounts like other types of projects might
- If a community has adequate electric infrastructure, brownfield sites can be attractive options for data centers.
- Landing a big-name data center can be a gateway to other tech companies (and young workers) considering a community.
Similarly, some cautions on data centers based upon public information include:
- Data centers are full of servers – not people. Employment will vary, but 50 jobs seems to be a common staffing level of a large data center. If a community is already struggling to fill open jobs, this may be a good fit. However, if a community is looking for a mega-employer, a data center may not be the best answer.
- Data centers consume vast amounts of land, electricity and often water, depending upon their cooling technology. Communities will need to decide for themselves if the trade-offs are sufficient.
- Data centers can provide strong tax revenue streams through smart incentive negotiations, but lopsided negotiations could leave a community with big users of resources but little tax revenue for a generation after they are built.
Bricker Graydon has guided clients in implementing strategic approaches to winning data center projects and ensuring data center projects deliver mutual benefits. Some strategies have included: payments in lieu of tax (PILOT) agreements, using tax increment financing (TIF) to redirect a portion of future new real property taxes from the project to pay for public infrastructure improvements, creating a new community authority (NCA) to support desired community facilities, port authority capital lease financing, and careful crafting of development and purchase agreements so that communities and developers share in the risks and rewards of the booming data center market.
[1] This article is for informational purposes only and does not constitute legal advice. The author is not an attorney and cannot provide legal advice. For specific legal concerns, please consult a licensed attorney.
[2] Data Center Map, Nov. 25, 2024, https://www.datacentermap.com/usa/ohio/
[3] Goldman Sachs, “AI is poised to drive 160% increase in data center powered demand,” May 14, 2024, https://www.goldmansachs.com/insights/articles/AI-poised-to-drive-160-increase-in-power-demand
[4] Mark Williams, “AEP Ohio: Data center electricity demands to put central Ohio on same tier as Manhattan,” Columbus Dispatch, May 14, 2024 https://www.dispatch.com/story/business/energy-resource/2024/05/14/aep-ohio-rolls-out-proposal-to-handle-surge-in-data-center-power-needs/73677235007/
[5] John Bush and Zachary Jarrell, “Data Centers Testing Local Energy Supplies,” Columbus Business First, Aug. 1, 2024, https://www.bizjournals.com/columbus/news/2024/08/01/data-centers-aep-energy-supply.html
