A new electricity consumption tax on data centers in Virginia passes into law on July 1, 2026

On June 22, 2026, Virginia’s General Assembly approved its two-year biennial budget (HB 30), which includes a first-of-its-kind electricity consumption tax on qualifying data centers. The tax took effect July 1, 2026, and runs through June 30, 2028.

The measure levies $0.011 per kWh (1.1 cents) on all electricity consumed at covered data centers each month — whether supplied by a utility or self-generated. It explicitly excludes facilities whose primary function is internet access, communications services, or VoIP, targeting hyperscale and AI-focused operations instead.

Revenue is capped at $600 million per fiscal year for the state’s general fund. Any amount collected above the cap is refunded pro-rata to the data centers (via their electricity providers) at the end of each fiscal year. Initial payments begin in September 2026 after the State Corporation Commission issues guidelines.

What This Means for Virginia’s Data Center Market

Virginia hosts the world’s largest concentration of data centers — over 665 facilities, concentrated in “Data Center Alley” (Loudoun County and surrounding Northern Virginia areas). The sector already consumes roughly 24 TWh annually, representing a massive and growing share of state electricity demand.

The new tax adds a direct operating cost on top of existing utility rates and other fees. For context, Virginia’s industrial electricity rates averaged about 9.86 ¢/kWh in April 2026. The 1.1 ¢/kWh tax represents roughly an 11% increase on the power component for affected facilities.

However, the impact is mitigated by several factors:The tax is temporary (sunsets after two years).
It is capped, with refunds above $600 million.
Virginia preserved the lucrative sales and use tax exemption for data center equipment, estimated at $1.6–1.9 billion annually — more than triple the maximum annual revenue from the new energy tax.

The budget also introduced new requirements: data centers must minimize water use for cooling (with stricter rules in groundwater-scarce areas), and the Department of Environmental Quality will set noise standards by 2029 (effective 2030). A work group will study potential reforms to the sales tax exemption.

Additionally, Dominion Energy’s new GS-5 rate class (for loads ≥25 MW, effective 2027) requires long-term contracts, collateral of $1.5 million per MW, and minimum payments for reserved capacity. This shifts more infrastructure risk onto large users but provides greater certainty for utilities and ratepayers.

Overall, the package represents a modest revenue clawback and regulatory tightening rather than a fundamental reversal of Virginia’s pro-data-center stance. Industry growth is expected to continue, though at a potentially more measured pace amid rising scrutiny.

Virginia’s Energy Mix and Its Role

Virginia’s in-state electricity generation in 2025 was dominated by natural gas (~59%), nuclear (~28%), and renewables (~14%, mostly solar), with coal at ~3%. The state remains a significant net importer of electricity through the PJM Interconnection grid.

Data centers are the primary driver of explosive demand growth. Dominion Energy forecasts that data center load could reach 13+ GW by 2038 in its territory alone. This is accelerating the need for new generation, transmission, and grid upgrades, contributing to upward pressure on rates for all customers.

The energy mix favors reliable baseload (nuclear + gas) but faces challenges scaling quickly enough for AI-driven demand. Renewables are growing but intermittent; the state’s renewable goals exist alongside practical reliance on gas and imports. The new tax applies even to self-supplied renewable or on-site generation, removing one potential incentive for behind-the-meter clean power.

Political Context, Energy Policies, and Prices

Virginia operates under Democratic trifecta control (Governor Abigail Spanberger and Democratic majorities in the legislature). Recent policies reflect a pragmatic response to the data center boom’s fiscal and infrastructural consequences: lost sales tax revenue from the large exemption, rising electricity rates for residents and businesses, local concerns over noise/water use, and grid strain.

Claims framing this as a broad “move to socialism and communism” are inaccurate hyperbole. Virginia remains a market-driven economy with strong business incentives. The changes are standard democratic governance adjustments — clawing back some revenue while preserving the core exemption and infrastructure advantages that made the state dominant. They address real externalities (rate impacts on households, environmental/resource pressures) without nationalizing industry or imposing command-economy controls.

Energy policy continues to balance affordability, reliability, and growth. The new tax and rate-class reforms aim to protect residential and small commercial ratepayers from subsidizing massive loads. Base rates have risen due to infrastructure needs and fuel costs; the consumption tax layers an additional targeted cost on the largest users.

Will Data Centers Still Locate or Expand in Virginia?

Likely yes for most major players, at least in the near term, for several reasons:

• Sunk costs and ecosystem advantages: Massive existing investments, world-class fiber connectivity, proximity to Washington D.C. financial/government hubs, available land in key counties, and a skilled workforce.
• Temporary and capped tax: The 2-year sunset and refund mechanism reduce long-term deterrence.
• Preserved sales tax exemption: Still worth billions annually.
• Competition is not cost-free elsewhere: Texas offers lower industrial rates (~6.33 ¢/kWh in recent data) and rapid growth but faces its own grid reliability issues (ERCOT) and transmission bottlenecks. Georgia (~6.84 ¢/kWh industrial) and North Carolina (~7.73 ¢/kWh) are competitive but lack Virginia’s scale and infrastructure density.

Virginia’s effective power cost for data centers (base industrial rate + 1.1 ¢ tax) remains in a competitive range globally, especially when factoring in total cost of ownership (land, connectivity, latency, talent).

That said, marginal new projects or expansions may face more scrutiny. Cumulative pressures — higher base rates from demand, the new tax, stricter water/noise rules, and the GS-5 collateral requirements — could slow the pace of growth or shift some development to lower-cost or less-regulated states. Hyperscalers (Microsoft, Google, Amazon, etc.) with existing footprints are more likely to stay and optimize than relocate entirely.

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