The data center gold rush in Pennsylvania has struck a new hurdle.
New restrictions from Gov. Josh Shapiro could slow projects in early development and make the state a tougher sell for companies still deciding where to build, attorneys who work in the data center sector said.
Shapiro signed an executive order last week to incorporate the Governor’s Responsible Infrastructure Development, or GRID, requirements into the Pennsylvania Department of Environmental Protection’s review of data center proposals.
The order is the latest state action to impose guardrails on data center construction, as policymakers around the country mull the infrastructure demands of the boom.
“The larger trend is that states are moving away from simply asking how they can attract data centers and are increasingly asking who pays for the infrastructure,” Trent Cotney, partner at law firm Adams & Reese, told Construction Dive. “For developers and contractors, data center construction is becoming as much an energy, regulatory and community-relations issue as it is a traditional construction issue.”
Data center rules in other states
Pennsylvania’s rules contrast somewhat with those from other states.
New York, for example, enacted in July the first statewide moratorium on data center construction permits.
“That was to give New York time to study and decide what to do about data centers in New York and what restrictions to impose,” Jeff Moerdler, chair of the data center and digital infrastructure practice at Haynes Boone, told Construction Dive. “Pennsylvania skipped that step and went direct to the executive order.”
Texas, for its part, recently called for an audit of all data centers in the Electric Reliability Council of Texas interconnection queue, essentially hitting the brakes on data center development. As of July 1, lawmakers in 15 states had considered outright bans on data center construction, according to the National Conference of State Legislatures.
“I expect the order to slow some projects, particularly at the front end, but I do not view it as a ban on data center construction.”
Trent Cotney
Partner at Adams & Reese
Any moratorium decisions by states, regardless of final outcome, will have multiyear impacts on data center construction activity, said Moerdler. In other words, developers who once were considering sites in these states will now look elsewhere, he said.
“There’s complete uncertainty,” Moerdler told Construction Dive. “Pennsylvania doesn’t quite go that far in establishing a moratorium, but they have set a much more stringent set of criteria, so it will be a site-specific decision.”
Pennsylvania’s requirements cover issues such as energy affordability and environmental protection and ultimately give local communities a greater role in the development process. The order also removes data center projects from Pennsylvania’s Permit Fast Track program, which streamlines permitting for high-impact economic development and infrastructure projects, according to the state.
“In practical terms, developers will need to address power, water, environmental permitting and community concerns much earlier in the development process,” Cotney said. “I expect the order to slow some projects, particularly at the front end, but I do not view it as a ban on data center construction.”
The order effectively establishes two permitting paths for large data center construction projects in Pennsylvania, said Cotney.
Developers that make a binding commitment to the GRID requirements can receive rolling DEP review and permitting, he said. Those that decline can still move forward, but first must secure local approvals and will not have access to the same rolling review process.
Established developers with committed users and financing should generally be able to adjust, according to Cotney. Speculative projects will have more difficulty.
“In that sense, the order may act as a filter,” Cotney told Construction Dive. “It raises the cost and complexity of development, but it should not prevent well-capitalized and well-planned projects from moving forward.”
DEP reports more than 100 proposed data centers over the past year, according to the governor’s office. Of those, 58 have engaged with the agency about permitting and 15 have applied for at least one DEP permit. Only five of these have received all permits necessary for the first phase of development, according to the governor’s office.
The order should have little, if any, “material impact” on shovel-ready projects, Moerdler said. On the other hand, projects earlier in the process still in need of key approvals, particularly Pennsylvania DEP approval, now face a stricter path, he said.
Early projects to look elsewhere
The ruling could drive away potential data center investment from Pennsylvania, said Moerdler.
In other words, a developer that already has spent significant money on a project will have more incentive to work through the new requirements, said Moerdler. Developers still in the initial stages, however, may consider other states.
“Somebody that’s at the very beginning, just exploring sites, is going to say, ‘I’m looking at 10 sites around the country, cross Pennsylvania off my list for now until I get more clarity,’” said Moerdler. “The earlier the stage the project is, the more this will adversely impact that by encouraging people to move elsewhere on those early stage projects.”
Pennsylvania’s new DEP process applies to permit or authorization applications submitted after Aug. 18, said Cotney. It does not automatically cancel existing permits or require every pending project to start over. That’s relevant for data center campus projects, which developers typically build in different phases, said Cotney.
The price of business
Developers that stay in Pennsylvania will see a higher price tag for data center builds in the commonwealth, attorneys say.
The GRID requirements call for commitments around local hiring and community benefits. Developers must also meet environmental standards, including requirements around water conservation.
“Pieces of it may impact costs of projects,” said Moerdler. “The community benefit agreements and hiring local workers may increase costs.”
Other costs may rise as well. For example, developers may need additional engineering and consulting work to navigate the requirements.
“Some of this affects soft costs, some of this affects hard costs,” said Moerdler. “Contractors would be concerned about both.”
The ruling also touches on power requirements, one of the biggest current headwinds to data center construction.
Under GRID, developers must cover the cost of new electricity infrastructure, and may not shift those expenses to Pennsylvania households or other businesses. Moerdler said, however, utilities had already been moving in that direction.
“Electric utilities and the grid are already working to pass cost of infrastructure improvements through to the data centers,” said Moerdler. “Maybe it needs a little more careful analysis, and maybe this imposes that.”
