“Data centers running complex operations and code require greater use of graphic processor units (GPUs) and computing processor units (CPUs). As these units increase in complexity to handle AI calculations, their energy and water consumption increase in parallel.” – Environmental and Energy Study Initiative, April 2025i
Why is Northern Virginia “Data Center Alley”?
There are 570 data centers in the state of Virginia, the majority of which are in the northern portion of the state often referred to as Data Center Alley.ii Virginia has the largest and most concentrated data center market in the world, with some estimates indicating that the region handles up to 70% of global internet traffic.iii Several qualities make the region a prime location for data centers: a supply of reliable and affordable energy, a strong fiber network, flat land for building footprints, water for cooling, location near major national customers, educated and skilled labor force, and a state tax regime that incentivizes the development of data centers.
Affordable and Reliable Energy
Data centers require extraordinary amounts of electricity. In 2023, data center consumption accounted for only 4.4% of total U.S. electricity consumption; however, it is estimated that data centers will triple their needs by 2028.iv By 2030-2035, Professor Mahmut Kandemir of Penn State suggests that data centers could account for 20% of global electricity consumption – which is astounding.v
According to the U.S. Energy Information Administration, in 2023 Virginia’s electricity generation was derived primarily from natural gas (49.9%) and nuclear power (41.2%), which was rounded out by renewable energy (6.8%), and coal and petroleum (<3% combined). vi Electricity pricing is made up of three primary components: electricity generation (62%), electricity distribution (26%), and electricity transmission (12%). Fuel costs are the largest driver of generation expenses. Given the volatility of natural gas prices—and the fact that natural gas supplies more than half of Virginia’s in-state electricity generation—this energy source plays a significant role in determining overall energy prices. Nuclear power supplies stable baseload power, while renewable sources, representing about 12%, benefit from having no fuel costs.
Virginia’s total energy prices between 2000 and 2023 closely mirrored the national average. However, average industrial rates in the state have been 15–20% lower than the U.S. average, with Virginia ranking 3rd for industrial costs per kWh in 2022.vii The rapid expansion of data centers will likely place upward pressure on electricity costs, with energy prices rising faster than competitors as already seen between 2005 and 2020. Residential customer costs rose 47% in Virginia compared to 39% nationally, while industrial customer costs rose 41% in the Commonwealth compared to 30% nationally.viii High voltage transmission costs are influenced heavily by capital investments. PJM Interconnection, the largest regional transmission organization in the U.S. and the grid operator serving Virginia, has identified substantial infrastructure investments as necessary to expand capacity and meet the growing electricity demand from data centers. According to a Monitoring Analytics report, “existing data center demand and forecast data center demand has resulted in significant increases in costs for other PJM customers.”ix Similarly, on the distribution side, Dominion Energy projects a 20% increase in capital expenditures attributable to data center growth, further contributing to an upward pressure on electricity prices.x
Water Availability
Northern Virginia has an abundance of affordable water from the Potomac River basin, which supplies much of the region’s potable water. Data centers require on-site water to cool their servers, typically via air or evaporative cooling systems. Some companies, like Google, have attempted to reduce their potable water use by using recycled water to cool their servers.xi Although recycled water reduces potable water consumption, the result is still evaporation. While water vapor is the main byproduct of evaporation, chemicals like biocide, heavy metals, and corrosion inhibitors can be in the evaporated water and pollute the surrounding environment.xii Although public information on the water consumption of individual data centers is tightly held, if left unregulated, large water consumption can create a significant pollution problem.
Although Northern Virginia is not currently experiencing from water scarcity, data center water consumption could become a stressor in the future. According to researchers at the Interstate Commission on the Potomac River Basin, data centers account for 2% of water consumption during most of the year and 8% of water consumption during peak summer heat. xiii Total water consumption by data centers are projected to dramatically increase.xiv
Robust Fiber Network
Virginia has one of the most robust fiber and dark fiber networks in the U.S., connecting the state to every major domestic market.1 Providers benefit from the existence of a densely packed fiber networks. It is these fiber networks that are critical to Virginia’s role as a prime location for data center construction. Virginia has enacted a “Fiber First” strategy for broadband expansion that rewards fiber’s durability, capacity, and expected ability to meet long-term demand. The preference for fiber optic cables over satellite internet service is partially due to scalability concerns, as satellite service has limited bandwidth, and partially due to concerns about reliability, as the state’s topography could impact satellite dependability.
Northern Virginia’s preference for fiber optic cables originates from its early role in the development of the modern internet. In the 1960s, the U.S. Department of Defense’s Defense Advanced Research Projects Agency (DARPA) developed ARPANET in the region. Northern Virginia further solidified its position as a global connectivity hub in the early 1990s with the creation of MAE-East (Metropolitan Area Exchange, East) in Vienna, Virginia.2 As the first major private internet exchange point (IXP), MAE-East was handling roughly half of the world’s internet traffic by 1997. Its establishment permanently anchored global internet routing infrastructure in Northern Virginia, laying the groundwork for the region’s data center development. Since the 1990s, major U.S. companies have formed, consolidated, set up offices, and built data centers in the area, earning Northern Virginia the moniker of “Data Center Alley.”
Virginia saw further development in its fiber networks after 2012, when Hurricane Sandy damaged undersea fiber networks connecting the U.S. and Europe. This disruption highlighted the need for redundancies and greater geographic diversity of U.S. fiber networks. Three large subsea fiber optic cables were installed connecting the U.S.’s East Coast to Europe via Virginia Beach’s cable landing station: BRUSA, laid in 2018, connecting the U.S. to Puerto Rico and Brazil; Dunant, laid in 2021, connecting the U.S. to France; and MAREA, laid in 2018, connecting the U.S. to Spain.xv Virginia Beach is also set to connect to SAEx, which will connect the U.S. to South Africa, and to Confluence-1 cable, which will connect the Eastern U.S. from New Jersey to southern Florida. Information flowing from these undersea cables through the Virginia Beach landing point is then routed north through Richmond, Virginia to Data Center Alley in Northern Virginia.
Additional Secondary Factor
If power, water, and fiber networks are available, reliable, and affordable, other factors such as location to major customers, skilled labor force, local tax incentives, and land quality become secondary factors for deciding data center placement.
Data centers must be constructed on flat land which is abundant in the eastern part of Virginia, as the western part of the state contains the Appalachian Mountains and other mountainous areas. While there are existing or proposed data centers along the Appalachian Mountains, the vast majority are nested along I-95 corridor north of Richmond. This prime location is home to data centers for Microsoft, Amazon Web Services, Google, Verizon, and countless other major companies. Continued growth is occurring along the I-95 corridor from Northern to Central Virginia. This growth, combined with the fiber network, creates a collective action problem whereby companies are incentivized to continue building east of the Appalachian Mountains.
Furthermore, major national customers who rely on data centers in both the private and public sectors reside in Northern Virginia and Washington DC. Placing data centers in Northern Virginia ensures that data providers are near the customers they support and have access to a skilled labor force. Although job creation is often touted as one of the benefits data centers bring to the area, most job creation is limited to the construction phase, as data centers typically require minimal staffing to be maintained and operate.
Virginia has strongly incentivized the building of data centers through the creation of a business-friendly environment and tax incentives, in fact, Virginia was ranked 4th “Top State for Business” by CNBC in 2025.xvi In 2010 Virginia introduced a Data Center Retail Sales and Use Tax Exemption (DCRSUT Exemption), available until 2035, to lure data centers to the state. The DCRSUT exempts qualifying computer equipment or enabling software purchased or leased for use in certain data centers from retail and use tax. According to a 2024 Virginia Department of Taxation report, the incentives are “essential for maintaining Virginia’s lead in data center development given the wide adoption of this sort of incentive by competitor states.”xvii
What benefits and costs do data centers bring to Virginia?
The rapid expansion of data centers built in Virginia prompted the Joint Legislative Audit and Review Commission (JLARC) to review their impacts on the state.xviii According to JLARC, “overall, the data center industry is estimated to contribute 74,000 jobs, $5.5 billion in labor income, and $9.1 billion in GDP to Virginia’s economy annually.”xix The $9.1 billion represents approximately 1% of Virginia’s GDP. Virginia also benefits from the creation of data centers via the capital investments that they bring to the local economy. That said, the benefits are largest at the start of the project, when construction leads to jobs and increases material consumption, but the benefits are limited once the data centers are built. Because of the growing backlash against data center construction, their growing pervasiveness, and encroachment on established neighborhoods, and placement in semi-rural areas, the Virginia Legislature has introduced several bills to limit tax incentives and eliminate the DCRSUT.
While data centers do provide some economic benefits, there are growing fears that Virginia’s infrastructure will not be able to support the current levels of growth and that the capital costs necessary to build the required infrastructure would be borne by local customers. If data center growth were left unconstrained and critical infrastructure could support its power needs, energy needs in Virginia could triple. However, according to Energy and Environmental Economics, who in 2024 conducted a report on the impacts of data center growth in Virginia, “sustained scale and pace of data center growth in the region will likely be constrained by new energy infrastructure development.”xx
Local governments and residents are not the only entities with concerns over energy availability. The federal government identified energy dominance as crucial to preserving U.S. cutting-edge technologies, such as artificial intelligence, in the 2025 National Security Strategy.xxi In other words, if infrastructure development doesn’t keep pace with the energy and cooling needs of data centers we will be unable to realize the full potential of AI and quantum computing, which depend on data centers.
Unconstrained growth would most likely require substantial investments in energy infrastructure. Such investments would require substantial capital injection into the power grid infrastructure but issues over who pays for the grid improvements needed to support the energy demands caused from data centers has so far gone unanswered. Dominion Energy, one of the major utilities serving Virginia, has recognized the outsized cost posed by such data centers and proposed a new rate class dubbed “GS-5 rate class” for “high energy” users – those who consume more than 25MW and have a monthly load factor greater than 75%– that requires them to pay a larger part of the power distribution and transmission costs of the demand contracted with Dominion.xxii This new rate class, approved by the State Corporation Commission in November 2025 and effective January 2027, will require customers to sign 14-year contracts and “pay a minimum of 85 percent of contracted distribution and transmission demand, and 60 percent of generation demand.”xxiii The rate class aims to protect residential consumers from rising electricity costs associated with data center expansion in Northern Virginia.
Another concern connected to data centers is energy waste. According to a report written by Reshape Strategies, “nearly all the electricity they consume ultimately winds up rejected as waste heat [into the atmosphere].”xxiv One suggested way to optimize energy use is to convey the wasted heat generated by data centers to heat for buildings through a district energy system (DES).3 These systems capture “wasted” heat from one building and use it to heat another, reducing consumption needs. DES are advantageous because they ensure reliable, stable heating, reduce peak power demand and grid load, and increase efficiency via economies of scale by capturing otherwise wasted energy.xxv Recycling wasted heat through a DES could “increase energy efficiency, lower Green House Gas (GHG) emissions, cut water consumption, reduce noise, and help make [data centers] a more attractive neighbor.”xxvi
In addition to concerns about electricity prices, grid capacity, and water consumption, data centers have seen pushback from residents who complain of continuous generator noise and headaches. Data center generators and heating-ventilating-air-conditioning systems regularly generate noise reaching above the 85 decibel (dBA) threshold considered harmful to human hearing.xxvii Additionally, air pollution around data centers is of great concern, as data centers emit hazardous pollutants linked to respiratory and cardiovascular disease.xxviii According to the Community & Environmental Defense Services (CEDS), “[a] data center may adversely affect the health of those living at least 0.6-miles away and possibly miles further under some circumstances.”xxix Even so, data centers on average are emitting less than they are allowed by their Department of Environmental Quality (DEQ) air discharge permits.xxx
Virginia residents have also expressed concerns about land use in an area that is highly residential and frequently faces housing supply constraints. However, there is no evidence to suggest that data centers have a negative impact on housing prices in the region: “any negative externalities associated with data centers, such as noise, do not have a systemic effect on housing values.”xxxi Actually, according to a George Mason University study, proximity to data centers is correlated with higher home value.xxxii
Conclusion
Northern Virginia’s emergence as “Data Center Alley” was both a function of chance and deliberate local political decisions. In its early stages, data center construction attracted little public scrutiny. However, just as data centers have grown to match the need for compute coming from artificial intelligence and future quantum computing, so has public interest. Residents are increasingly concerned about data center impact on power consumption, water resources, and land use. Although Virginia offers many advantages for prospective data center operators, three factors ultimately matter most: reliable power, abundant water, and robust fiber connectivity. The state combines competitively priced power, an abundance of water, and one of the nation’s densest fiber networks, including significant dark fiber capacity, making it uniquely positioned to support large-scale digital infrastructure. Only time will tell if Virginia can continue to harness this beneficial environment.
The authors are responsible for the content of this article. The views expressed do not reflect the official policy or position of the National Intelligence University, the Office of the Director of National Intelligence, the U.S. Intelligence Community, or the U.S. Government.
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