Large “hyperscale” data centers are spreading nationwide, and questions have grown about their true costs and benefits. These projects often move quickly and with limited transparency, leaving state and local leaders and affected residents little time to assess their full economic, social and environmental impacts. Among the many uncertainties is the basic question: Who will pay the significant financial costs associated with these facilities?
But while states that rushed to attract data centers are scaling back incentives and adding guardrails, Kentucky is still in the beginning stages of this process and has time to mandate transparency and establish clear protections that prevent unexpected cost burdens. The state is well positioned to evaluate and proactively address how increased needs for electricity and water could affect costs for ratepayers, the impacts of incentive programs on state and local budgets, and whether and to what extent these projects benefit the communities in which they are located.
What are data centers, and where are they in Kentucky?
Data centers are physical facilities that store, process, and manage substantial volumes of data. They are necessary to power internet services like cloud storage, e-commerce, video streaming, artificial intelligence, cloud computing and cryptocurrency operations. Data centers have been around for decades, ranging in size from just one room to entire warehouse buildings. The U.S. has more than 4,200 data centers, making the country the global leader in data center capacity.
Recently, larger, “hyperscale” data centers have proliferated as the use of artificial intelligence (AI) and large machine learning programs has exploded. Hyperscale data centers differ from traditional data centers due to sheer size and capacity. They require a physical site large enough to house all associated materials, often including thousands of servers and miles of connection equipment. Hyperscale data centers also require much more energy, water and land.
There are also colocation data centers, a type of hyperscale typically owned by one company who rents out facilities, servers, bandwidth and space to other external companies. Distinguishing these colocation centers from other independent hyperscale centers is important, as they require different operations and come with different employment prospects.
Data center developers include massive corporations like Amazon, Meta, Microsoft and Google, as well as specialized companies like Equinix and QTS. While most existing data centers are in cities, most of the planned construction of data centers is in rural areas. Companies increasingly seek locations in states with limited regulation and oversight that offer tax incentives and have abundant agricultural land or sites with pre-existing infrastructure, making many areas of Kentucky prime targets.
Currently, two hyperscale data center projects are moving forward in Kentucky despite resident opposition. A joint venture project of Louisville real estate firm Poe Companies and Virginia-based PowerHouse Data Center will be developed in Louisville less than a mile from the Ohio River. The colocation center will be located on more than 150 acres of land and is expected to eventually use roughly 400 megawatts of electricity monthly — enough to power about 400,000 homes. The Louisville Metro Council is working on a zoning ordinance to regulate data centers but approved this data center before the ordinance was finalized.
Additionally, the company TeraWulf is proposing a $14 billion center on the site of the former Century Aluminum smelter in Hancock County, although there is an active petition from residents seeking to pause the project until the potential impacts and job creation numbers are publicly disclosed and defined. Other major projects are being proposed or have been proposed in Mason, Simpson, Meade, Oldham, and Mercer Counties. All of them have received local pushback.
Who decides about data centers?
The ability of hyperscale data centers to locate in a community, connect to the electric grid and access water resources is currently determined in Kentucky by local decision makers who are often simultaneously trying to understand the intricacies of data centers, adopt zoning laws to establish some guardrails and review these complex proposals. The deliberations are frequently hampered by a lack of transparency, one-sided data, project support from influential electrical utility companies and quick turnaround times required by the proposals.
Developers often require Nondisclosure Agreements (NDAs) as they seek to protect proprietary or commercially sensitive information. NDAs limit the amount of relevant information that decision makers can share, hindering their ability to request independent analysis from outside sources and limiting public access.
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