Why tax breaks for data centers? They’re coming anyway.
Data centers have been proliferating across the United States and world. With our Facebook accounts, Google searches, and perhaps dabbling in cryptocurrency, we’re all consumers. But should Colorado dangle tax breaks to attract them?
On Feb. 29 a state legislative committee is scheduled to hear a proposal to do just that. SB24085 would waive state sales and use taxes for up to three data centers a year between 2026 and 2034. They would have to create a minimum of $100 million in assessed valuation and generate at least 25 full-time jobs to be eligible. They would also have to create at least three megawatts of new demand for electricity.
Citing experiences of other states, critics see many downsides to data centers even without subsidies. They could cause rates of Xcel Energy or other electrical utilities to inflate even more rapidly. Water demands of data centers for cooling pose other questions.
Could this bill actually make it more difficult for Colorado to meet its economy-wide decarbonization goals? In New York and Montana, coal plants scheduled for retirement have been brought back to deliver electricity needed by data centers.
The bill proposes to make the state’s Office of Economic Development the judge of who gets tax breaks. Water use and energy efficiency would be criteria for evaluating candidates but the bill offers no specifics. It also suggests rural communities could benefit, but offers no mechanism to achieve that.
“Colorado is falling below the curve in terms of attracting more digital infrastructure assets,” the bill says. “The state must incentivize the development of these projects.”
Mark Gabriel, chief executive of United Power, an electrical cooperative serving 110,000 meters along the fast industrializing I-76 corridor, disputes that contention.
“The state is NOT having problems attracting data centers,” he said in an e-mail. “In the case of United Power we are working with several who are attracted due to our rates, location and willingness to meet their deadlines. It could be valuable for rural and remote locations, but even then the attractiveness of Colorado is a determining factor.”
In other words, why the free ride?
Colorado has abundant wind and solar to satisfy increased demand. But, as the Economist noted in January in a deeply reported story, “renewable energy and data centres are far from a perfect match.”
Data centers operated by Amazon, Microsoft, and other giant operators mostly need electricity on a 24/7 basis. Utilities with decarbonization goals more ambitious than the state-mandated levels already are working overtime to try to figure out new strategies such as through demand-side management programs.
Long-term storage remains the holy grail in decarbonization. Solutions may be innovated here in Colorado. Nothing is a sure bet.
Others argue for nuclear, but they have been awfully shy about acknowledging the consistent cost overruns in trial projects involving new nuclear technology. Plus, we still haven’t figured out what to do with the waste. It’s a can we just kick down the road.
Geothermal, the “heat beneath our feet” that Gov. Jared Polis promoted when chair of the Western Governors Association, has potential to produce around-the-clock electricity. A company has reported headturning numbers from its deep drilling in Nevada. In Colorado, the heat is deeper beneath our feet.
At his office along I-76, United’s Gabriel says that instead of incentives, legislators could perhaps help by requiring data centers to work with utilities on load control and management.
Colorado needs to think about data centers, because they will come. This proposal to dangle subsidies should go into the trash can.