Data centers gobble up energy. Should SC block them from getting special deals?

COLUMBIA — South Carolina, like much of the country, is wrestling with a need for more electricity, both to maintain its track record of economic development success and to serve a ballooning population.

Also fueling the need for more power are the electric vehicle industry, driven by federal incentives, and technology advancements that require massive amounts of energy. Keeping up with these growing energy needs has been the political talking point at the root of proposed energy legislation making its way through the Statehouse.

As part of that debate, one particular type of industrial user has been singled out — data centers.

These centers are major power and water users and typically employ between 20 and 50 workers.

South Carolina has at least four large data center projects in the works, collectively needing an estimated 800 megawatts of power daily. Compare that to a single megawatt being enough to power between 400 and 900 homes in a year, according to federal estimates.

That’s in addition to at least nine data centers already in South Carolina, as well as numerous smaller private ones serving a single company’s needs.

“Data centers are becoming more and more a part of daily life for all of us in South Carolina,” Jimmy Staton, the head of state-owned utility company Santee Cooper, told legislators during a meeting in February.

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Change begins

When it comes to these centers, South Carolina is not necessarily a hot spot compared to other states, according to Ford Graham, a consultant with McGuire Woods who has helped site a number of them here. These windowless buildings that house rows of servers needed to run technologies, such as the 5G streaming of videos on mobile devices and high-speed financial trades, have been rising all over the country.

“We’re using more data, and you have to have a place to store it,” Graham said.

Typically, companies have targeted northern Virginia, the backbone of the country’s internet system on the East Coast. But siting there has become difficult and expensive.

“For many years, South Carolina was flagged as a ‘red light’ state, meaning not a location where data centers were willing to locate,” said James Chavez, who heads the economic development organization serving the state’s power cooperatives.

That started to change about two years ago.

“The demand we all have for data on our devices, cloud storage, buying online, and now artificial intelligence is forcing all providers to build just as fast they can,” Chavez said.

Nationally, 2,700 data centers consumed 4% of the total electricity in 2022, a number that’s projected to rise to 6% by 2026, according to the International Energy Agency.

Simultaneous growth

But it’s not data centers alone that have created South Carolina’s energy crunch, Graham points out.

The last few years have brought half a dozen new major manufacturers into the state – particularly makers of electric vehicles and the batteries that power them. Eventually, over the next decade, each will need somewhere between 100 and 150 megawatts daily, according to economic development officials.

Meanwhile, South Carolina had the fastest population growth rate in the country last year, amounting to 90,000 new residents, according to U.S. Census Bureau estimates.

Residential power usage fluctuates, particularly during hot Southern summers. There are roughly 2.4 million homes in South Carolina, according to the census.

Finally, cryptocurrency miners have emerged as major drains on electricity, Graham said, though their usage has been harder to pin down as companies file lawsuits to block federal inquiries. The world’s largest cryptocurrency company, GDA, opened three centers in the Upstate in 2023.

Data center benefits

Proponents argue data centers are not without benefits, particularly in more rural parts of the state.

These major investments, ranging from $500 million to $1 billion in some cases, raise a considerable amount of property tax revenue. They require a lot of power and water. But when it comes to other services, such as roads and schools, their impact is less.

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“On a square-foot basis, it’s one of the highest property tax generating uses in the industrial sector,” Graham said.

While they don’t produce a lot of jobs, they can pay six figures to employees they do hire, he added.

Also, because they use more power, data centers and other large industrial companies cover a larger share of costs for building projects such as power plants and lines, ultimately helping keep rates down for other customers, Chavez said.

A matter of timing

Where utilities are running into trouble is the pace of new development has been faster than the ability to add power generation, Staton said.

“From a timing perspective, you can drop 200 megawatts onto a system in a matter of two or three years,” the utility executive told lawmakers. “Where it takes us decades, in most instances, to bring the level of capacity.”

Santee Cooper is anticipating 1,000 megawatts worth of economic development projects over the next four years, with the potential to double that within six years.

“So, we need to ensure that we can accelerate that pace,” Staton said.

That acceleration created a rub for consumer groups worried about rising power bills as utilities have asked legislators to speed up timelines for regulatory review in some instances, as well as roll back certain customer protections. Changes made to the legislation by a Senate committee last week have, for now, eased many concerns about consumers being represented in the regulatory process.

Special deals

But advocates for consumers also have questioned deals utilities and county governments have made with data center developers.

“It’d be fine with me if we didn’t serve any of them,” Dominion Energy South Carolina President Keller Kissam said of data centers during a legislative hearing last October.

But at the same time, the Virginia-headquartered utility company was brokering a discount electricity deal for a $510 million Google data center proposed near Summerville.

State utility regulators then approved the deal in February allowing Dominion to grant Google a special “economic development rider” rate — 6 cents for every kilowatt hour, compared to 14 cents that residential customers pay.

In addition, Dorchester County offered up property tax cuts — locking the company in to the 4% property tax rate — the rate paid by homeowners — for four decades without reassessment of the property’s value, which is typically done every five years.

“Data centers are doing nothing to deserve a special deal,” Lynn Teague, a lobbyist for the League of Women Voters, previously told the SC Daily Gazette. “They should at least make them pay their way.”

An effort by the House to block these types of reduced electric rate deals was short lived. The amendment was inserted by the House during its floor debate on the bill last month. A Senate committee promptly struck that section from the proposed legislation last week.