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Advocates for bringing data centers into Connecticut warned that a proposal to restrict emissions from large diesel power generators could halt the industry’s interest in the state, undoing the progress of major incentives lawmakers approved to attract data centers last year.
Those tax incentives have so far appeared to be achieving their goals, as proposals for new data centers have popped up across the state, including in Groton and Wallingford, where municipal electric companies make the cost of electricity less prohibitive for the energy-intensive data centers.
But DEEP Commissioner Katie Dykes warned the legislature’s Environment Committee on Monday that Connecticut is falling behind on federal ozone emission standards, and said the bill lawmakers are considering to restrict emissions from diesel-powered generators with capacities of 5 megawatts or larger is necessary to improve air quality in the state.
Dykes said she anticipates that the federal Environmental Protection Agency will soon downgrade Connecticut’s status for complying with ozone level restrictions in the Clean Air Act from “serious” to “severe” – making Connecticut one of a few states along with New York, New Jersey and the coastal areas of California to require that designation, which carries stepped-up restrictions and enforcement from the EPA.
Dykes said the bill applies generally to businesses that use diesel-fueled generators for “peak shaving” – a practice where large businesses like manufacturers run their own power generators to reduce their demand from the grid and avoid costly spikes in electricity usage.
Though Dykes said the bill is not targeted at data centers, she said the centers could have significant impacts on emissions because of the sheer amount of energy they consume.
Thomas Quinn, who has applied for his companies Gotspace and NE Edge to build data centers in Wallingford, Bozrah, Griswold, Norwich, and most recently Groton, said the restrictions would “effectively negate” the progress lawmakers made last year when they agreed to waive all sales and property tax obligations for data centers for 20 years in an attempt to attract the businesses.
Quinn said there are no generators that these data centers could buy that would be able to meet the emissions restrictions in the bill, and the areas where it’s possible to build these centers don’t have enough natural gas supply for the centers to use non-diesel generators for emergency backups and peak shaving.
But DEEP Bureau of Air Management Chief Tracy Babbidge said the regulations are based on Delaware’s regulations, which have been in place since 2012. There are 390 individual generators complying with those regulations in Delaware, she said.
There aren’t “off the shelf” diesel generators that meet the restrictions, but there are modifications available that can be made to meet the restrictions, she said. Quinn said the regulation made it even more complex for someone to bring a data center into Connecticut, which was already an undesirable market before lawmakers approved the incentives last year.
“We’re making this a Rubik’s cube to be able to get into Connecticut with this equipment, and probably not attainable in the timeframe necessary for critical construction,” Quinn said.
Quinn said there are four criteria developers look at when deciding where to build a data center: tax incentives, cost of utilities, sufficient fiber-optic cable connections and regulations.
“When they look at Connecticut, the first thing they say is, ‘Stop right now, the power is just way too expensive,’” Quinn said.
If after weeks of back and forth and engineering reports, they find the power costs are workable considering the tax incentives, they ask about the regulations, Quinn said. Adding new restrictions that could impact data centers sends the industry a “messy signal,” he said.
State Rep. Mary Mushinsky, D-Wallingford, said that she and many other lawmakers voted for the data center tax incentive bill last year with the understanding that there would be emissions requirements passed along with it. Mushinsky said she supports bringing the industry into Connecticut, but said it’s also lawmakers’ responsibility to protect air quality.
She said she had proposed language similar to the bill being considered this year as an amendment to the tax incentive bill, but that amendment didn’t pass as it wasn’t raised until the last day. Her understanding, she said, was that the data centers could agree to the emissions standards as long as they exempted the initial emissions when a generator is first turned on, which would be higher than the ongoing emissions while the generator is running.
“I hope we can sit down with the [bill] language, move forward, and get the protection in there that [the data centers] can meet – even if it becomes a little more expensive,” Mushinsky said.
Beyond data centers, Groton concerned about impacts on industrial businesses
Dykes said the proposed regulations are based on rules in Delaware, and aren’t meant to restrict backup diesel engines for emergencies or maintenance that requires a business to temporarily disconnect from the grid – just on “peak shaving.”
Dykes said the bill was restricted to diesel generators with a capacity of 5 megawatts or greater simply because it’s easier to regulate when there is a minimum threshold that allows regulators to focus on generators that would have the highest potential to harm air quality.
Quinn said that data centers are far from the only business that would be using generators to shed their load in Connecticut. Hotels, universities, and municipalities all do it, he said. But Quinn said he believes the reason the bill only covers generators with a capacity of 5 megawatts or greater is to exclude those other entities and directly target data centers that will use larger generators, he said.
But the bill could also affect other businesses, State Sen. Heather Somers, R-Groton, said – including large businesses in her district like Pfizer and Electric Boat, and manufacturers elsewhere in the state like Pratt & Whitney.
“Data centers do require a lot of energy, and they can’t go offline – so they have to have a source of backup generation,” Somers said. “Just like Pfizer does in my district, they can’t go down, and during power outages and peak times, they pull off the grid and generate their own power.”
City of Groton Mayor Keith Hedrick wrote a letter to the committee opposing the bill, but told CT Examiner on Monday that his opposition wasn’t because of the impact it could have on the data centers Quinn has proposed to build in the Town of Groton.
Hedrick said his concern is for another “research and development industrial” company that is a customer of Groton Utilities and is planning to expand. Hedrick declined to name the company, but said it uses generators as an emergency backup and for peak shaving, and that it is considering an expansion that would require adding more generators.
Groton Utilities, which is a municipal utility separate from the major companies United Illuminating and Eversource, has generators that it runs to shave its peak loads to avoid brownouts in the winter and summer when demand for electricity is highest, and the larger businesses do the same, Hedrick said.
Babbidge said peak shaving occurs on days where the electric grid has the highest demand, which coincide with the days that Connecticut experiences the worst air quality. Businesses running diesel generators to cut their demand to the grid would likely contribute to even higher emissions, which could exceed ozone standards, Babbidge said.
“We have to reduce emissions further to meet EPA standards,” Babbidge said. “We also want to try to achieve that in a way that has the least impact on our economic competitiveness.”
Hedrick said he supports the environmental goal of reducing emissions, but worried that the restrictions could keep that company from expanding, and could keep other companies from looking to build in Groton, he said.
“[The city has] long become dependent on a couple of large employers to carry the tax burden, and we need to find additional industrial or commercial customers that are going to help with that tax burden so as not to put a burden on the taxpayers,” Hedrick said. “The challenge that we have is some people are all or nothing – it’s gotta be all economic development or all environmental. I think we can do both, and we should do both.”