The unknown costs of Amazon's $20B promise to build 2 data centers in Pennsylvania

Technical.ly

2 days ago

This article by Stephen Caruso and Kate Huangpu was originally published in Spotlight PA, a news partner of Technical.ly. Spotlight PA is an independent, nonpartisan newsroom powered by The Philadelphia Inquirer in partnership with PennLive/The Patriot-News, TribLIVE/Pittsburgh Tribune-Review, and WITF Public Media.
Amazon plans to spend $20 billion to build two data centers in Pennsylvania, a move that state officials say will generate thousands of jobs over the next decade and stoke considerable economic activity.
But many key details, like the centers' full impact on electricity supply and prices, and the amount of tax revenue the state will forfeit to Amazon, are still unknown.
As part of a state law to incentivize data center development, Pennsylvania has approved a sales tax exemption for Amazon on key equipment that could potentially cost the state millions of dollars that otherwise would go toward education, health care, and other basic services.
In a statement, a spokesperson for Democratic Gov. Josh Shapiro highlighted benefits, saying the deal will 'generate hundreds of millions of dollars in new tax revenue for state and local governments.'
A data center is a sprawling collection of computer servers that perform essential functions of the online world, like processing and storing information. As tools like artificial intelligence, which requires a lot of processing power, rapidly advance, these centers are being built frequently and quickly nationwide.
These centers require a lot of electrical power and water to cool their servers.
One, slated to be built in Luzerne County's Salem Township, will draw some of the electricity it needs from an existing nuclear power plant, the Susquehanna Steam Electric Station. The rest of its power will come from the electrical grid. The other is planned for an industrial park on the site of what used to be a steel mill in Falls Township, Bucks County, and will, at least to start, draw all of its power from the grid.
The centers could kick off further development by Amazon Web Services, the company's cloud computing subsidiary. An Amazon executive told the Associated Press that the company also plans to build a third data center north of Philadelphia.
Here's the information we have about these massive projects and the accompanying pros and cons.
What jobs are coming to Pennsylvania?
When Shapiro and his team announced the deal in June, Department of Community & Economic Development Secretary Rick Siger said the two data centers would generate 'at least 1,250 high-paying, high-tech jobs as well as thousands of construction jobs.'
These estimates are squishy. Data centers are notorious for operating without much human labor. A 2,250-acre data center being built in Louisiana for Meta is estimated to bring just 500 permanent jobs after construction is over.
Greg LeRoy, executive director of Good Jobs First, a Washington, D.C.-based watchdog that tracks state and local subsidies, said that most permanent data center jobs are in security and landscaping, alongside a handful of technicians who monitor the facilities' computers.
Rob Bair, president of the Pennsylvania Building and Construction Trades Council, a group that represents tens of thousands of union workers, is closely involved in major projects that come to the commonwealth. He told Spotlight PA that Amazon's initial $20 billion spending commitment probably guarantees five to seven years of development on each site, which translates to lots of good, long-term construction jobs.
The company may opt to keep spending money to further develop those sites, he said, but that isn't guaranteed.
'I always tell everybody, always just plan for the best, but you never know … they might get 12 buildings and then all of a sudden there's a shift in AI,' Bair said.
He stressed that he thinks the initial investment is still a 'really big deal.'
'That's a lot of economic activity for the state of Pennsylvania,' he said.
How will the centers impact state finances?
The state will spend $10 million for 'targeted workforce development efforts,' Shapiro spokesperson Manuel Bonder said in an email — the only direct financial investment in the project.
Bonder said this will include programming 'at schools, community colleges, and union halls across Pennsylvania to expand [vocational and technical training], create new [career and technical education] classes, and build new training centers.'
But the true extent of what the data centers could cost the state is larger.
Pennsylvania didn't offer a new, targeted incentive package to Amazon, but the tech giant has already been approved for a tax break that the commonwealth gives to companies that build data centers here.
Under a state program passed into law in 2016 and expanded in 2021, companies that spend at least $75 million on a data center and create at least 25 new jobs are exempt from state sales taxes when they purchase equipment to operate servers, cooling systems, software, and more.
The law requires neither the buyer nor the seller to report the cost of exempt transactions to the state. That means the exact cost is unknown.
'The biggest loss at the state level is the general fund, and you ask yourself what that means: It's [money that isn't being spent on] education and health care.'
Greg LeRoy, executive director of Good Jobs First
Still, the state estimates the lost tax revenue in budgets. But those estimates have varied depending on which administration is projecting the costs.
According to Shapiro's most recent budget proposal, the state is on track to lose $43 million in tax revenue to the data center credit this upcoming fiscal year. But when former Democratic Gov. Tom Wolf made a multi-year projection of the program's costs in his 2022 budget pitch, he predicted the likely cost of the program in the 2025-26 fiscal year would be nearly $75 million.
This cost reduction exists even though the program grew between Wolf's and Shapiro's projections. According to the state Department of Revenue, 12 companies are certified to claim the exemption as of 2024, compared to just eight in 2022.
Jeffrey Johnson, a spokesperson for the Department of Revenue, said the original projection was reduced after lower-than-expected use in early years.
Dozens of other states have similar economic incentives for data centers, which have led to a loss of hundreds of millions of dollars in tax revenue.
LeRoy of Good Jobs First said that when Pennsylvania's tax exemption first passed, the requirement to create at least 25 jobs and spend at least $75 million on building seemed like a high bar. At the time, he said, there were fewer large data centers.
But as AI supercharges the development of server farms, a greater number of projects qualify, increasing the cost to the state, he said.
'This is clearly an industry that doesn't need help,' LeRoy said. 'The biggest loss at the state level is the general fund, and you ask yourself what that means: It's [money that isn't being spent on] education and health care.'
At a minimum, LeRoy said, the legislature should ensure that beneficiaries report the real cost of the exemption, saying that mandating such disclosures is a 'baseline good-government issue.'
But those arguments don't have a lot of traction with leaders. Speaking to reporters in June, state Senate Majority Leader Joe Pittman (R., Indiana) argued that the exemption is 'not something I think we should mess with.'
Data centers, he added, are 'an economic investment that could have gone elsewhere, but is coming to Pennsylvania.'
What about energy prices?
As the number of data centers grows nationwide, government agencies and private research groups are projecting significant increases in energy demand.
A U.S. Department of Energy report released last year found that data centers ate up about 4.4% of total electricity nationwide in 2023, and projected that number would increase to between 6.7% and 12% by 2028.
'There was plenty of power from the supplier, [so] what we were taking off did not in any way, shape, or form lower grid reliability or grid capacity in that area.'
Rob Bair, president of the Pennsylvania Building and Construction Trades Council
Energy consumption varies depending on the size of data centers, which are getting bigger, according to a report from Boston Consulting Group. The firm estimated that the average data center currently consumes around 40 megawatts, and that the number will likely grow to 60 megawatts by 2028.
A gigawatt-sized center operating at peak demand would use an amount of energy comparable to a city of about 1.8 million people, CNBC noted in an analysis last year. That's bigger than Philadelphia.
It's still not clear how big the Amazon centers will be, which makes it difficult to assess how much energy they'll use.
The Luzerne County facility will get part of its energy from an existing nuclear plant, thanks to a new power purchase agreement between the generator, Talen Energy, and Amazon.
Bair, the Pennsylvania Building Trades president, expects the center to draw the rest of its power from the grid without disrupting reliability for nearby users. But, he added, 'if they're going to truly develop these over the long term in the campuses, they're going to need a substantial amount more.'
Bair said the Bucks County data center, which plans to get all its energy from the electric grid, is in a different position because 'there was plenty of power from the supplier, [so] what we were taking off did not in any way, shape, or form lower grid reliability or grid capacity in that area.'
However, if the Bucks data center keeps expanding, Amazon is 'planning to add generation so that the grid does stay reliable,' he said.
'Right now, where they're at, they're good. As they build that campus out, would I look for a future power source in that area? Yeah.'
All of the lingering questions about Amazon's plan create big concerns for lawmakers, as well as for advocates of clean energy and grid reliability.
State Sen. Gene Yaw (R., Lycoming) broadly supports the Amazon data centers but said he wants to be sure they won't overload the grid, which could lead to a rise in energy prices for Pennsylvanians.
What would 'best protect the interests of ordinary consumers,' he said, is for data centers to build energy generators. Consumers would also benefit, he said, if data centers build new power plants using state tax credits — such as a proposed credit for clean energy producers — so at least part of that generated energy goes back to households.
State Rep. Rob Matzie (D., Beaver) said he plans to introduce legislation that would create a regulatory framework for energy consumption by data centers, which he says will help ensure they don't overload the grid.
'The Amazon deal is a big deal, obviously, but at the same time, we have to keep in mind, we don't want rolling blackouts,' Matzie told Spotlight PA.
Jackson Morris, director of state power policy at the Natural Resources Defense Council, an environmental nonprofit, is more critical.
He said the deal between Talen Energy and Amazon to feed power from an existing nuclear facility into the data center 'essentially cannibalizes' existing clean resources, as the zero-emission energy would be reserved for the data center instead of serving consumers.
Morris worries that the rising energy demand from data centers will not only drive up consumer prices but also lead to utility companies leaning more heavily on high-emission power sources, like natural gas and coal.
'The reality is that the more demand you bring on without zero-emission supply, the more pollution we're going to have and the higher prices everyone's going to pay,' Morris told Spotlight PA.
But Joe Dominguez, CEO of electricity producer Constellation Energy, argued that the demand to meet higher computing capacity must be met.
'People often say, 'Look, all this power is going to data centers,' and it's almost like there's an image in someone's mind that's going into a hole in the ground,' Dominguez said at a recent news conference with Shapiro at Three Mile Island. The event was organized to promote the nuclear site's reopening to feed another data center, this one run by Microsoft.
'But you are all using it, right?'