Access to power and permits determines project success
Moves to tighten regulation of the data center industry following the US midterm elections are expected to affect delivery schedules for new development projects. However, an analysis suggests that tighter regulation would delay construction starts and operations through higher development costs and permitting delays, rather than halt data center supply. In its recently published report, 'Democratic election gains and AI data center regulation: Continued supply at a moderated pace,' Daishin Securities highlighted the concentration of a substantial share of planned US data center development in regions where regulation could tighten.
According to the report, citing Cushman & Wakefield data, planned US data center development totals 187.6GW, approximately 4.9 times the operating capacity of 38.2GW. Of that total, 92.2GW is concentrated in five states where gubernatorial elections brought Democrats into office: Texas, Georgia, Ohio, Nevada and Iowa. This represents about 49% of all planned US capacity. Planned capacity in Texas, Georgia and Ohio alone totals 80.2GW, accounting for 43% of the US total.
According to the report, tighter regulation is not a development that emerged only after the elections. Concerns that data centers' substantial electricity consumption could increase local residents' electricity bills, along with public opposition to construction, have already prompted policy responses from state governments led by both parties. Existing regulations fall broadly into cost obligations, grid connection approvals and siting restrictions. Ohio, Georgia and Virginia, among others, have introduced minimum charges and long-term contracts requiring payment of a certain level of charges even when electricity consumption falls short of initial plans. Texas is withholding approval for new grid connections of 75MW or more, while some Ohio cities have approved bans on data center construction through referendums. The analysis suggests that, combined with governors-elect's pledges to suspend new approvals and reduce tax incentives following the elections, these measures could increase developers' cost and scheduling burdens.
The report also noted that campaign pledges do not immediately become regulations. State governments and legislatures determine tax incentives, state utility regulators determine electricity rates and contract terms, and local governments determine land use and development approvals. In particular, abolishing tax incentives requires state legislation in 2027, so the actual scope and timing of the pledges' implementation will depend on subsequent procedures.
The report expects US data center supply to continue without major disruption in the short term. Capacity under construction in the five states where Democrats won governorships totals 11.8GW, equivalent to about 13% of the 92.2GW of planned capacity. With an approach also proposed to exempt projects already under construction from suspensions of new permits, the likelihood of an immediate halt in supply is limited. By contrast, projects still awaiting grid connections and environmental permits could face delayed operating dates or reductions in scale. This also raises the possibility that operating facilities with power and permits already secured could become scarcer.
US supply delays could create opportunities for some Asia-Pacific (APAC) markets. The average wait to secure power in APAC is 2.7 years, about half the five years in the Americas. Johor in Malaysia and Bangkok in Thailand are cited as regions with relatively strong growth potential, with development capacity exceeding existing operating capacity by factors of 2.8 and 15, respectively. However, the scale of development in APAC is smaller than in the Americas, making it difficult to replace US capacity. Whether individual countries actually benefit could also vary depending on progress in grid expansion and permitting.
In the report, researcher Kim Da-eun said, “US data center supply is expected to continue, but at a moderated pace,” adding, “Projects that have secured power and permits will stand apart in their ability to deliver capacity competitively.”
Original Korean article: kidd.co.kr
English brief by Korea Wind Intelligence, koreawindintel.com
