The growth of artificial intelligence is leading to increased competition among states seeking to attract data centers, which are crucial for AI operations. These facilities bring significant investment, infrastructure improvements, and economic opportunities.
A recent analysis by Shuting Pomerleau, Director of Energy and Environmental Policy, and Lily-Ann Smith highlights several main considerations that influence where developers choose to build new data centers. According to the authors, “As states compete to appeal to data center developers, it is helpful for them to understand the key factors in determining location for data centers, which include power availability, utility partnership, fiber optics cable availability, proximity to customers, regulatory landscape, and various environmental conditions.”
Major U.S. markets for data centers include Phoenix, Chicago, Dallas, Portland and Eastern Oregon, and Silicon Valley. The Commonwealth of Virginia stands out as the leader in both existing capacity and future projects.
Pomerleau and Smith emphasize that decisions about where to locate a data center go beyond just land prices or construction costs. They state: “Where developers decide to situate data centers is based on a calculation much more complex than land and construction costs and instead considers factors including energy access, network speed, and market proximity.”
Developers take into account not only access to reliable electricity but also the quality of partnerships with local utilities. Fast fiber optic connections are essential due to the large amounts of information processed by AI systems. Proximity to customers helps reduce latency times. Additionally, regulatory environments at the state level can encourage or deter development depending on permitting processes or incentives.
Virginia’s leadership in this sector has been supported by its business climate and investments in digital infrastructure. Other cities like Phoenix or Dallas have become attractive because of their robust power grids and connectivity options.
The expansion of AI-driven technologies is expected to keep demand high for new data center locations across these competitive markets.
