HomeKatusa Investment InsightsThe Electric Pandemic Dawns

The Electric Pandemic Dawns

In this week’s insights, we get into…

  1. Virginia’s Power Crunch: Northern Virginia’s data centers are depleting the power supply, outpacing even London’s consumption.
  2. Growth Effect: These data centers handle one-third of internet traffic and are rapidly expanding.
  3. National Impact: Data centers are driving up land values and causing power shortages across the U.S.

Dear Reader,

Everyone wants the internet. Most people want AI.

But people in Virginia are getting extremely sick of both.

The reason why is tucked inside a walled-off portion of an underground parking garage in a nondescript office tower in Northern Virginia.

This structure was created in 1992 to house the first central internet access point, MAE-East.

Soon after, America Online’s move to Loudoun County capitalized on affordable land, cheap energy, and minimal natural disaster threats.

Loudoun County was the perfect location for other reasons, to affordable land (then…), cheap energy (then!), and little threat of natural disasters.

The Epicenter of Power and Data

In 2009, when Virginia became the first state to offer data centers a major tax exemption, its fate as the epicenter of data centers was sealed.

Known as “Data Center Alley” Northern Virginia is home to more than 275 data centers. Shown below is a map, with each blue dot representing a data center.

These data centers handle one-third of internet traffic—and the industry is growing faster than ever.

Between 2018 and 2022, the capacity of data centers in Northern Virginia doubled. But 2023 hit an inflection point.

In a single year, the data center capacity in Northern Virginia increased by an incredible 33%.

The bulk of that growth is happening in the same county AOL moved its headquarters to more than thirty years ago.

Just thirty square miles within Loudoun County contains about 80% of the data center industry in Virginia, making it bigger than the next six largest U.S. markets combined.

And there has not been a single day without data center construction in Loudoun County since 2010.

Altogether, it now has more than 160 data center buildings with a combined 31 million sq. ft. of floor space—roughly equal to Central Park.

  • As a result of the growth, this single county—population 432,000—uses more electricity than the city of London—population 8,980,000.

Dominion Energy is the major regulated utility in Northern Virginia. In the chart below, it projects that 20GW of additional capacity could come online by 2040.

Even after accounting for newer more efficient chips, these new data centers will be even more power-intensive.

The Power Usage Effectiveness ratio or ‘PUE’ is one of the most important metrics when it comes to analyzing power efficiency for data centers.

  • A PUE of 2.0 means that for every watt of IT power, an additional watt is consumed to cool and distribute power to the IT equipment.
  • A PUE closer to 1.0 means nearly all of the energy is used for computing.

The chart below is Google’s PUE worldwide.

As you can see, the PUE dropped in early years but over the past 5 it has begun to flat line.

This supports the thesis that even after accounting for new high-efficiency chips, total capacity required is still going to increase.

This is why utilities now regularly field requests from developers asking for as much power as several nuclear reactors can generate.

Out of Power and No Place to Go

In 2022—before the data center industry really took off—a major firm found that it was unequipped to power all the data centers Loudoun County was building.

So it warned that it might not be able to meet future power needs.

At first, it began delaying data center connections, warning its large data center customers about a “pinch point” that might keep it from hooking up new projects until 2026.

Then it began turning them away altogether.

But there’s still a huge pipeline of these massive developments just waiting to be built.

  • Approved, but unbuilt, data centers in Loudoun County are equivalent to 5.8 million homes of power usage.

In other words, power is going to be a large-scale, out-of-control problem in Loudoun for the foreseeable future.

AI data centers are most efficient when densely packed.

Data center developers will build as much capacity as they can in a specific region—until the grid is overloaded—then move on to the next.

Digital Gateway, a single campus under construction in neighboring Prince William County, would require 2-3 GW of power.

That single data center could power two million homes—twelve times as many as are in the whole county.

The reality is that Prince William County is already running out of power itself. So massive developments have spilled over into the rest of Virginia, causing power demand to surge across the state.

If all current data center applications in Virginia were approved, they would require as much power as 14.6 million homes—four times as many homes as there are in the state.

So data center developers have begun spreading the electric pandemic to the rest of the United States.

Everyone is Now Chasing Power

85% of all new data centers built in the next three years will be outside Virginia.

The transition has happened so quickly that the primary markets across the U.S. already have significant power constraints—which has led to the rise of what TD calls the “anywhere” deal.

Everyone is now chasing power. They are willing to look everywhere for it.
– JLL Managing Director Andy Cvengros

That’s why land values in Columbus, Ohio have quadrupled. Parts of Chicago have tripled just because the land has access to power.

All across the nation, data centers are springing up in new secondary markets:

  • Meta is building a giant data center in Kansas City, Missouri, fueling what its utility is calling “the most robust electricity demand growth in decades.”
  • AWS recently announced plans to invest $10 billion in data centers in Mississippi—the largest capital investment in state history.
  • Even energy providers in Rust Belt states like Pennsylvania and Kentucky are seeing data centers with large load requirements cropping up.

As quickly as this has happened, states are realizing the predicament they’ve put themselves in.

In Arizona—one of the new primary markets for data centers—the number and size of new hookup requests just kept increasing. So the state’s largest utility put a temporary ban on new data center hookups.

Initially, Atlanta was excited to become a new hub for data centers. But now, Georgia Power is warning of power limitations.

A Challenge “Like we have never seen before”

The North American Energy Reliability Council estimates:

  • 65% of North America’s interconnection areas are at risk of a power shortfall…  this summer.

Power instability is coming, and it stands to wreck the U.S.—and AI with it.

But right now, there’s one utility that’s worried more than all the rest.

It’s at ground zero for data center growth.

This has created a challenge like we have never seen before.”
– Georgia Public Service Commission chairman Jason Shaw

Unprecedented challenges present unprecedented investment opportunities.


Marin Katusa


Details and Disclosures

Investing can have large potential rewards, but it can also have large potential risks. You must be aware of the risks and be willing to accept them in order to invest in financial instruments, including stocks, options, and futures. Katusa Research makes every best effort in adhering to publishing exemptions and securities laws. By reading this, you agree to all of the following: You understand this to be an expression of opinions and NOT professional advice. You are solely responsible for the use of any content and hold Katusa Research, and all partners, members, and affiliates harmless in any event or claim. If you purchase anything through a link in this email, you should assume that we have an affiliate relationship with the company providing the product or service that you purchase, and that we will be paid in some way. We recommend that you do your own independent research before purchasing anything.