Virginia Updates Incentives to Land $35 Billion Data Center Buildout by AWS

Virginia intends to remain the world's biggest data center market. That's the clear message from Friday's announcement that Amazon Web Services plans to invest $35 billion in new data center campuses in the state, supported by new tax incentives and grants.

The deal solidifies Virginia's status as the world's most important cloud computing market, and is likely to have a profound impact on the state's infrastructure and economy. State legislators are developing a new Mega Data Center Incentive Program, which includes up to a 15-year extension of existing sales and use tax exemptions for data center companies on qualifying equipment and software.

Gov. Glenn Youngkin said "numerous" sites in Virginia are under consideration for the future AWS campuses, whose locations will be decided at a later date.

“Virginia will continue to encourage the development of this new generation of data center campuses across multiple regions of the Commonwealth," said Youngkin. "These areas offer robust utility infrastructure, lower costs, great livability, and highly educated workforces and will benefit from the associated economic development and increased tax base, assisting the schools and providing services to the community.”

One likely goal is to expand the cloud boom beyond Northern Virginia, where the sector's explosive growth has sparked tensions with residents in Loudoun and Prince William counties.

AWS Doubling Its Cloud Investment in Virginia

AWS is effectively doubling down on its cloud presence in Virginia, said Roger Wehner, Director of Economic Development at AWS.

“Since 2006, AWS has invested more than $35 billion in Virginia, boosting the Commonwealth’s total Gross Domestic Product by nearly $7 billion and supporting thousands of jobs annually," said Wehner. "Building on these successful beginnings, we plan to invest an additional $35 billion in the Commonwealth of Virginia by 2040 and create 1,000 jobs.”

That huge investment supports the AWS US-East Northern Virginia cloud region, which stands at about 50 data centers and is growing fast. It’s the largest single concentration of corporate data centers on earth, positioned near a strategic Internet intersection in Ashburn, which serves as a global crossroads for data traffic. As the cloud grows, the ability to add servers near Ashburn has become the table stakes for companies with ambitions in cloud computing.

Since low-latency access to the AWS cloud is crucial for the digital economy, Friday's announcement also portends a larger cloud presence in Virginia for Amazon's cloud rivals and data center developers. That means more construction in Northern Virginia, but also boosts the prospects for emerging data center markets in Richmond, Virginia Beach and areas like Stafford and Fauquier counties that are jockeying for spillover capacity from the crowded Ashburn mega-cluster.

Virginia also has the potential to support rural mega-campuses, as seen with the massive Microsoft cloud cluster around Boydton, a tiny town in Mecklenberg County. The Microsoft campus benefits from its access to the cable landings in Virginia Beach. The same holds true for the large Facebook/Meta campus in Henrico County near Richmond. Meta and Microsoft are partners in the Marea subsea cable, which runs between Virginia Beach and Europe.

A Response to Competition

Given Virginia's dominant position in the cloud industry, why update the incentives? State officials may be responding from a competitive threat from Frederick County, Maryland which has plenty of land, power and tax incentives. The Quantum Loophole project in Adamstown has already pre-leased 240 megawatts of power to four tenants, including Aligned Data Centers, which plans to build 3.3 million square feet of capacity at the campus.

According to news reports, Amazon last year considered shifting its data center development to Frederick County, with the potential to invest up to $30 billion over 15 years. Friday's deal ensures that those data centers will be built in Virginia rather than Maryland or elsewhere.

Virginia's data center tax incentives currently run through 2035, and offer exemptions for sales and use taxes for data center companies that invest more than $150 million in computer equipment and software. The new Mega Data Center Incentive Program includes "up to a 15-year extension" of the tax breaks. Amazon says its data center construction plan will extend to 2040, meaning it would not have cost certainty on investment beyond 2035 without the extension.

Youngkin: Virginia is for Data Centers

The news of Virginia's new commitment to data centers comes just days after several legislators introduced bills seeking to tighten regulations around data center development, spurred by tensions around the Prince William Digital Gateway project near Gainesville.

Friday's blockbuster announcement makes clear that the Youngkin administration supports data center growth. The data center industry brings $1.2 billion in tax revenue into the Virginia economy annually, including $1 billion to local municipalities and $174 million to the state, according to a2022 study from the Northern Virginia Technology Council.

The new Mega Data Center Incentive program is being developed by The Virginia Economic Development Partnership, in collaboration with the General Assembly’s Major Employment and Investment (MEI) Project Approval Commission. The assembly must approve the new incentives, along with a proposed MEI custom performance grant for Amazon of up to $140 million for site and infrastructure improvements, workforce development, and other project-related costs.

“The addition of multiple data center campuses will underscore Virginia’s position as the world’s largest data center market segment, and we thank AWS for its long-term commitment to the Commonwealth,” said Delegate Barry Knight, chair of the Major Employment and Investment Project Approval Commission .

As the Virginia Assembly develops the incentive package, it will be interesting to see if the measures consider community impact, and encourage standards and best practices that might defuse some of the growing tensions around center development, which include:

proximity to residential neighborhoods, parks and historic sites
use of water
availability of electricity and impact on the power grid (such as the current constraints on transmission capacity in parts of Loudoun County)
noise from the operation of generators and cooling equipment
lack of visual appeal of some data center building designs

Data centers are non-traditional engines of economic development. Much of their impact occurs in the digital realm, while full-time jobs remain the key metric for economic development. Data centers boost construction employment, but the completed facilities are highly automated, and can be run by 20 to 50 people per building. The tradeoff is that they generate large amounts of tax revenue and don’t create strain on local schools and traffic.

US-East Anchors AWS Cloud Platform

Amazon’s $35 billion investment in Virginia is certainly its largest investment in a single state. AWS US-East Virginia region is the company’s largest region, including six Availability Zones (AZs) – clusters of data centers within a region that allow customers to run instances of an application in several isolated locations to avoid a single point of failure. No other region in North America has more than four AZs.

That spending aligns with the massive capital needed to build out cloud computing platforms. Google, Microsoft and Facebook are also making big investments in their data center infrastructure, investing between $600 million and $4 billion for each data center campus they build.

Synergy Research Group estimates that hyperscale operators invested $149 billion in capital expenditures on an annualized basis in 2021, with spending growing at about a 30 percent clip from year to year.