2025 Look Ahead – Data Centers

Data centers can get a bad rap – large buildings near residential areas, consuming power, drawing water, creating an inescapable hum. No industry is perfect. But what else? Data centers generate large tax revenues for localities (and in Loudoun County, VA, for example, thereby reduce the tax burden on residents), their owners give back to the communities and invest in the alternative energy industry to help solve concerns around power, and if you use the internet, drive an electric car, make plans using a smart phone – you need them; the “cloud” lives inside of data centers. As Artificial Intelligence (AI) expands, we’re only going to need them more, and the U.S. government agrees. During his last week in office, former President Biden signed an Executive Order (EO) committing Federal support to ensure American leadership in AI, which includes facilitating the construction of data centers through several measures, catalyzing clean energy generation, and creating partnerships. During his first week in office, President Trump highlighted strategic partnerships and billions of dollars in AI infrastructure investment.

So in 2025, what challenges does the data center industry face to remain good environmental stewards while making solid business decisions to deliver the connectivity we expect? As a rapidly growing industry for ALL4, and one in which we utilize all four of our practices, here is what we see:

Where to Build and What is Required

It used to be all about “fiber” (the cables and their components used to transmit data). It’s why Northern Virginia has led the data center space for so long. While fiber is still important, availability of power now dominates the conversation. For context, the servers used to host the internet, AI, data for electric vehicles, etc. need continuous power, which means data centers need continuous power. This comes in many forms, but predominantly they are powered by electricity from the utility company backed up by emergency generators using diesel-fired engines that kick on when the main power supply is interrupted. Where there are delays until utility power is available, access to natural gas is a growing topic as more data centers consider on-site power generation (natural gas-fired engines or turbines) to span the gap until they get electricity. Community opinion can also be a consideration along with environmental constraints (e.g., water availability, air permitting), particularly as data center campuses grow larger for economies of scale and to handle the data needs of the future.

We see a growing interest and need in site selection/air permitting studies. Permitting requirements vary so much state to state. In some cases, building a data center even in one county versus another can have significant impacts on budget, capacity, equipment procurement, and more, just considering air quality permitting requirements. This is why a site selection/air permitting study as part of due diligence is important before land is purchased. In addition, such a study can help with initial project budgeting and timelines, and understanding what challenges air permitting may present in terms of equipment procurement and installation dates.

If you are a hyperscaler or colocation, air permitting has always been important to consider. Smaller data centers called “edge” data centers, built closer to population centers to increase service, sometimes install only a handful of emergency engines; however, as requirements get tighter, air permitting can be a limiting factor for them also. We also see more property management companies in the data center space or those focused primarily on energized shells in business parks, and while they use it a little differently, they too need a site selection/air permitting study for proposed sites.

The following factors drive the need for those studies:

• Air emissions thresholds that trigger complex permitting from one county to the next can differ by up to 300%, limiting how many engines can be installed at a facility, or requiring expensive air pollution control equipment [often selective catalytic reduction (SCR) units for oxides of nitrogen (NO_X) reduction]. If engines are needed to provide primary or back-up power to a facility, to ensure continuous power, limiting the number of engines limits the amount of server capacity that facility can hold. We see this in Texas, for example; the Dallas-Fort Worth (DFW) area is a severe non-attainment area for ozone, thus creating a major source threshold for NO_X emissions, the largest pollutant from the combustion of diesel fuel, of 25 tons per year (tpy). For those data centers built in Austin, El Paso, and many locations outside of DFW or Houston, that threshold is 100 tpy for NO_X.
• Many states have increased their focus on emissions of air toxics, and include diesel particulate matter (DPM) in those evaluations. These air toxics programs often require air dispersion modeling as part of air permitting and can lead to the need for air pollution control equipment like diesel particulate filters (DPFs) or oxidation catalysts (DOCs) to reduce emissions of air toxics or DPM. California [focused more on particulate matter (PM)], Oregon, New Jersey, Georgia, and others lead state/district agencies on requirements for air toxics.
• Public input on air permits has been commonplace for decades, depending upon the type of permit, type of facility, or general public interest. With the increased initiatives around Environmental Justice (EJ), air permitting requirements are changing to respond to these areas of concern. Because EJ is so localized and every state handles it differently, it is important to understand the EJ landscape when considering a new site. A facility to be located in or near an overburdened community may need to conduct air dispersion modeling, which can 1) extend the timeline for air permitting, 2) result in the installation of air pollution control equipment on engines that would not have otherwise needed it, and/or 3) require more time to engage with the community ahead of engine installation.
• There is a lot of discussion about the impacts of lower National Ambient Air Quality Standards (NAAQS) – we are looking at you, PM₅, and changing attainment status designations – and for good reason. These lower ambient standards and major source thresholds can increase air permitting requirements and risk to the project, expand permitting timelines, and/or trigger the need for air pollution control equipment, all of which impact costs and construction schedules.

When it comes to air permitting strategy, there are really only three levers to pull – regulatory burden (e.g., the type of permit or permitting program selected), capital expenditure (e.g., type of engines purchased, air pollution control equipment, construction delays), and operational flexibility (e.g., fuel consumption or hours of operation limits, restrictions on when and/or how many engines can be simultaneously operated). The ideal strategy finds the best lever position for all three, balancing risk, cost, and future needs.

Power

We have all read news stories about the power crunch, and power is a challenge that will require many solutions. The predictions for total U.S. data center electricity consumption in 2028 from the 2024 Report on U.S. Data Center Energy Use produced by Lawrence Berkeley National Laboratory are attention-grabbing, and states are conducting reviews of the impacts of the data center industry generally, such as the Joint Legislative Audit and Review Commission (JLARC) report for Virginia published on December 9, 2024.

Data centers have been building substations to support their campuses for years, but the power challenge now extends beyond that. Buying land where there is power, finding ways to move to the front of the line to get power where they want to build, and/or generating power themselves, at least in the interim – that’s what data centers focus on now. We hear about programs where localities/local utilities will prioritize facilities in the power queue that take on some of the power burden. The emergency generators are often the first place they look, and facilities are encouraged to participate in some form of demand response or peak shaving program. Programs to make use of emergency generators to stabilize the grid are not new but the power crunch and high energy prices are creating more interest in the data center community in such uses.

However, the Federal engine rules and subsequent determinations by the U.S. Environmental Protection Agency (EPA) are strict about what generators can participate in financial arrangements and when, and no state or locality can be less strict than U.S. EPA. For example, U.S. EPA has clarified that for a generator to operate as a non-emergency unit (according to U.S. EPA’s definition), the engine must be a Tier 4 certified engine, not a Tier 4 compliant engine (i.e., add-on emissions controls), beginning with engines manufactured in 2011. In addition, for those facilities installing Tier 4-certified engines, either as part of sustainability goals/good stewardship programs or as part of a demand response business model, the inducement override can only be used in an emergency that could impact public health, not just because the power went out and an engine ran out of diesel exhaust fluid. In August 2022, U.S. EPA issued an enforcement alert for engines operating out of compliance; while data centers may be disappointed that the numerous emergency generators installed all across the U.S. are restricted in how they can participate in power solutions, we want the industry to be aware of the risks and review their engines carefully before entering into any programs. The good news is that there are some local utility programs designed specifically to meet the financial arrangement criteria of the Federal emergency engine definition for easier enrollment of emergency generators.

A common on-site power generation method is natural gas-fired engines or turbines, which are proven, deployable technologies. The downside is that the air permitting requirements for the emergency generators at data centers pale in comparison to what is usually needed for 24/7 gas-fired power generation, even with air pollution control equipment; lead time to allow for permitting is key. On the plus side, we see equipment that can use natural gas now but also switch to hydrogen as that source of fuel becomes available to more facilities, helping data centers to future-proof their facilities and meet sustainability goals. Over the last year or two, the idea of small modular reactors (SMRs) has been a hot topic at data center conferences. While that technology advances, data center partnerships with owners of existing nuclear reactors have dominated the recent conversation; it will be interesting to see how the idea plays out among the various agencies and stakeholder groups. Investments in and deployment of other alternative energy sources such as fuel cells, wind, solar, etc. continue as well. The data center industry has both the motivation and the means to invest and promote energy development because a sustainable power portfolio must contain diverse energy sources, providing both a consistent base load and ability to cover the peaks.

The data center industry and the sustainability space are interconnected in many areas, and power is one of the biggest. In addition to looking for ways to reduce power consumption and supporting communities by facilitating reliable power, alternative sources of energy, clean energy as the Executive Order described it, will continue to be of vital interest. For more on sustainability, see Connie Prostko-Bell’s 2025 Look Ahead article. While not data center-specific, Connie notes several topics that apply directly to this industry: energy, supply chain, regulatory reporting, greenhouse gas emissions, building performance standards, carbon footprint, water consumption, waste disposal, and risk. Two examples of data centers and sustainability come to mind outside of the power space:

• Just last fall, we all saw the article about Microsoft incorporating wood into some of their new buildings to reduce steel and concrete to lower the carbon footprint.
• Community involvement is of particular focus inside the data center industry but not often discussed outside of it. The data center space (made up of owners, operators, customers, support contractors, and more) collects toys or food for local communities, fundraises and donates to charities, lights up their buildings in team colors to support the local high school, and engages in community activities (both before the data center is built to answer questions about the upcoming facility and through on-going involvement). In addition, they are crafting and teaching education courses to develop a workforce for 2025 and beyond, and spurring a renewed interest in and demand for people to work in trades through their expansion across the U.S. and the world.

What Else is Changing

Data centers are having to rethink their design and equipment, and do their best to future-proof as technology advances. The power density within the same server rack is changing rapidly – with AI and other high-performance computing (HPC) functions, the power density can be 5 to 10 times higher than what’s required for the cloud. Not only does this draw more power, and create space challenges to install the corresponding emergency generators (e.g., we see bigger campuses and a lot of stacking of engines now), but the process to manage the heat generated by the server rack also changes. You may have heard about liquid cooling, the re-emerging technology to help cool HPC systems because liquid conducts heat more efficiently than air. Most data centers have relied upon air cooling, the traditional air conditioning approach using cooling towers, chilled water loops, and/or refrigerant-containing equipment, and this will continue to be needed. But in order to implement liquid cooling technologies, such as immersion cooling or direct-to-chip cooling, there are many considerations and changes needed both to the server and the data center. For new sites, this can be part of the planning; for existing sites, retrofits can pose a challenge.

Uninterruptible Power Systems (UPS) are another hot topic as they serve a critical function for data centers. Because back-up engines take time to start-up in the event of a power outage, data centers use a UPS to keep providing power to the servers until the emergency generators take over. For many data centers, a static UPS formed by a large quantity of batteries is used. Because of the great number of batteries required for a large data center, battery-based UPS have undergone some changes in recent years, such as moving from predominantly lead-acid to lithium-ion. In 2023 and 2024, ALL4 published a lot of content about batteries, including this webinar on supply chain, this article on best practices, and this webinar about lithium ion battery safety and compliance. But there is significant discussion now about dynamic UPS, also called rotary UPS, which consist of a generator directly coupled with an energy storage system rotating on a shaft. The most common type is referred to as a Diesel Rotary Uninterruptible Power Supply (DRUPS). If the power fails, part of the energy in the storage system (e.g., flywheel) drives the generator to start producing electricity and another part of the energy supports quick start-up of the engine, which can reduce or eliminate the reliance on battery UPS.

There are reliability, cost, and space differences between the technologies to consider, but because the dynamic UPS systems usually involve fuel combustion, air permitting considerations are also important to evaluate. If you are considering such a system, please involve your environmental consultant early in discussions, just like you would for your emergency generators and potential on-site generation plans.

Conclusion

ALL4 is proud to partner with data centers all over the U.S. to support: site decisions, budget and equipment planning through air permit strategies, construction schedules through comprehensive and turnkey permitting efforts, sustainability goals and reporting, health and safety needs, and compliance with environmental requirements through diligent reporting, training, tool development (including digital solutions), auditing, and more.

If you are considering on-site generation or a dynamic UPS, give us a call.

If you are looking to buy land in a new area and want to talk about the potential for EJ engagement or air pollution control equipment, give us a call.

If you want to talk with a certified energy manager, discuss storage tanks or water permitting, or chat about universal waste, give us a call.

Please connect with me, Sharon Sadler, WDC Office Leader and ALL4 Data Center Lead, at ssadler@all4inc.com or 571-392-2595.