There is a huge tech standoff underway right now. It’s between the nearly insatiable demand for additional data centers and community refusals to allow them to be built. Is there any way to satisfy both groups? I think there is.
Why We Need More Data CentersWhy is there such a building frenzy for data centers all of a sudden? Most business IT and e-commerce is well established. What’s new is the recent introduction of powerful Artificial Intelligence or AI tools. AI, itself, isn’t all that new. It dates back to the 1950’s. Over the decades these software applications have been expanded to play chess, answer Jeopardy questions, scan medical images, and search data bases.
In the last few years, more powerful and general purpose applications like ChatGPT, Claude, Gemini and Microsoft Copilot have been introduced and business has gone wild. Every company is afraid that every other company is going to gain a competitive edge by enhancing employee productivity or simply eliminating staff. So, just about everyone is trying their hand at using AI tools. Those tools are supported by powerful processors located in… you guessed it… data centers.
Is This Revolution for Real?
Like the Internet boom that really picked up steam in the 1990’s, AI is likely to transform how we work & live. Also, like the Internet, it isn’t going to happen suddenly and all at once. The Internet and e-commerce took a generation to fully develop. It’s likely AI will follow a similar path to widespread adoption.
What that means is that this immediate need for near-infinite new data centers is probably overblown. Once everyone has had a chance to play with the tools to see what they can do, businesses are going to reconsider how many tokens they really want to buy for experimentation. Some applications will show great promise. Others will turn out to be blind alleys with no return on investment.
In the long run we are going to live in a more technical world and data centers are going to power it. We been through the massive buildout of factories and shopping centers. We’re now going to switch to data centers and have to figure out how to integrate them into our environment.
Why Are Data Centers a Problem?
Companies building new data centers are naturally trying to get the most benefit from the least cost. That means siting where power is readily available and taking advantage of where land is flat and cheap, especially if TIF (Tax Increment Financing) districts or other tax incentives are available. Communities anxious to bring in new tax revenue have jumped at the chance to get someone to build business infrastructure, only to have regrets later.
A data center isn’t like a factory or shopping center. Once construction is completed, it supports only a few of tech and maintenance jobs and doesn’t primarily serve the local community. Fiber optic Internet means data centers can serve customers anywhere.
What communities are disappointed with is the rise in electric bills for everyone as the massive power needs of the data center are supported, often with new power construction needed. Another complaint is noise. Giant fans for cooling and diesel generators or turbines for power are upsetting to residents in the countryside or subdivisions near where data centers are sited. The power is often needed to supplement limited utility sources as well as backup. Finally, cooling can mean a massive draw on local groundwater that threatens utility users.
How to Make Data Centers Community Friendly
The key to success here seems to mean structuring a deal where both sides benefit. The data center companies need to show a favorable return on their investment or it makes no sense to build, at least in that location. The communities need to be sure that benefits exceed the costs including financial, social, and environmental or they will reject the application.
First is the run-up in electricity rates. Electric bills have been steady for years as heavily using industries relocated overseas and energy saving from things like LED lights and TV sets replaced earlier power hogs in the home. Data center power demand has introduced a new upswing in the need for power generation. One solution is re-commissioning shutdown nuclear plants. New smaller and faster to bring on-line nuclear generators are nearing deployment but won’t be a big factor for years.
Coal plants get the thumbs down for environmental, but fuel cells using natural gas, like the ones from Bloom Energy, are quiet and more acceptable. Solar, wind and battery don’t cause environmental problems, but can still get objections depending on where sited. OK, Those data centers have enormous flat roofs that can be built to support significant solar power production during the day when demand is highest all-around. Data center companies can also fund off-site solar fields to the feed the grid. Construct extra capacity and utility prices for everyone else should come down, not go up.
Battery storage for overnight and inclement weather is quite practical. Tesla is deploying utility battery storage worldwide. Once again, if the data center funds more capacity than it needs, the community will benefit and should welcome the addition.
Siting is critical. You can’t stick a giant noisy facility near a high-end subdivision and not get serious blowback. Better to get way out in the countryside or in some undesirable area where abandoned factories are decaying or landfills are being reclaimed. Using closed-loop water or refrigerant for cooling limits the drain on well water. Heat dissipation will have to be done without roaring like a jet engine.
Now, forget trying to get tax incentives. Pony up the same taxes as anyone else and create a decommissioning escrow fund for when the facility has reached its useful life and everyone should be happy. Any extra contributions for local schools or roads just sweetens the pot.
If these data centers really are as valuable as promoted, there should be enough money to satisfy both shareholders and community stakeholders. You’ll know the tide has turned when people start requesting data centers be built nearby.