Hyperscale data centers come to Arkansas

Amid a surge in demand for artificial intelligence (AI) and cloud computing, Arkansas will see hyperscale data centers begin operating in 2027.

About $12 billion will be invested into four hyperscale data centers planned for central and eastern Arkansas, with the largest expected to exceed $21 billion at full buildout.

Arkansas Secretary of Commerce Hugh McDonald said the state legislature approved a data center incentive in the 2023 session that was refined last year. The incentive, along with energy regulatory reform legislation, has helped attract data centers to Arkansas. This includes a sales and use tax exemption for data centers and a reduction in permitting time for new energy projects from 12 to 18 months to six months.

“These hyperscale data centers have been all over the country,” McDonald said. “We’re new to the table, frankly. They’ve been on the East Coast for quite some time, then in Texas, (and the) West Coast.”

Asked whether the state recruited them here, McDonald said, “We have not recruited any of them. They’ve all come to us.”

The incentives factored in their decision to build here, but the state also offers resources, including low-cost energy, land and water, said McDonald, noting that even without power, the state can more quickly approve projects to accommodate the center’s energy demands.

He said “a number” of data centers are considering whether to locate in Arkansas but declined to say when an announcement will be made, adding “that’s just not how we operate.”

“We’re working with them as they need us,” McDonald said. “But primarily how these data centers evaluate their alternatives, because power is such a critical need, they work with the utility companies first and mostly work with the utility companies. And we get involved somewhere along the line. But we’re not out there recruiting data centers like we recruit steel manufacturers or aerospace defense or lithium. They’re coming here on their own volition just because the environment is right for them.”

THE CENTERS
AVAIO Digital Partners plans to build a $6 billion data center on 760 acres near Interstate 530 and 145th Street, south of Little Rock. Google plans to invest $4 billion through 2027 to build a 1,000-acre data center in West Memphis. About $1 billion each will be invested in data centers at the Little Rock Port Authority and in Conway.

At full buildout, AVAIO plans to invest a total of $21 billion into its Project Leo data center. Then it would consume 1 gigawatt (1,000 megawatts) of electricity, or roughly 5% of the state’s generating capacity. Its existing contract with Entergy Arkansas is for 150 megawatts of electricity when the center opens in June 2027. The utility plans to provide an additional 420 megawatts. AVAIO also has plans for a gas plant with more than 500 megawatts of behind-the-meter generation and a 75-megawatt solar array on site.

Entergy Arkansas is also working with Google to ramp new solar energy and battery storage resources for its West Memphis center.

McDonald said that, because of the new energy demand, the utilities will have to build power plants to meet it, or the data center will need to build its own behind-the-meter power plant.

“They want to have a highly reliable electric system,” he said. “They don’t want interruptions, so typically they’re connected to the grid in some fashion. We also see most of them with a desire to have some sort of renewable energy requirements. Mostly for us that would be solar.”

He said if structured correctly, the data centers could keep electric rates lower for other customers than they otherwise would be. The 150 megawatts dedicated to the AVAIO data center are already available on the grid, and once operational, the center will add 150 megawatts of demand with a load factor of nearly 100%.

“In other words, they’re going to consume those kilowatt-hours 24 hours a day, seven days a week, 365 days a year. And when Entergy looks at its overall rates, they’ll factor this new customer and this new demand, and it has the potential to actually reduce all other customers’ rates compared to if they were not there.”

OPPOSITION, IMPACTS
Nationwide, $18 billion in data center projects have been blocked, and another $46 billion in projects have been delayed over the past two years amid opposition from residents and activist groups, according to a November report by Data Center Watch. At least 142 activist groups in 24 states have organized to block data center construction and expansion.

Opposition to data center construction is motivated by area concerns that vary by region, the report shows. Some common themes included higher utility bills, water consumption, noise, property value impacts and green space preservation. Also, the report cited a HostingAdvice survey of 800 Americans in which 93% said data centers are vital to the United States, but only 35% would vote to have a data center built in their hometown if a vote were held.

The construction phase of data center projects is expected to require thousands of workers, and once built, they will continue to have long-term economic impacts.

“They would be tremendous property tax generators for the local jurisdictions where they’re located,” McDonald said. “They do have high-paying jobs, not a lot of them, but it depends on how big these campuses are.”

The largest project is expected to provide 500 high-paying jobs. “That’s pretty significant,” he added. “Small data centers, they don’t have a whole lot of jobs, but even these hyperscale, depending on how much they build out … it’s not like a manufacturing facility like a steel mill where they make an investment of $3 billion, and they got 900 employees. The ratio of capital investment to employees is much different in a data center than it is in a manufacturing facility.”

The average salary for data center employees is about $80,000.

NOT A FOCUS
Asked whether any large-scale data centers are being planned for Northwest Arkansas, Nelson Peacock, president and CEO of the Northwest Arkansas Council, said he’s not aware of any. The council is not actively recruiting them to the region, but if one were looking to locate in Northwest Arkansas, “we would certainly be helpful to them and trying to figure that out.”

He said, as far as proactive economic development, data centers are not a council priority because of the mismatch between resource consumption and job creation. He knows that they may be good investments, affect property values and bring high-paying jobs in other areas, “but for us, that’s not really our focus.” The council aims to pursue more projects that create more jobs.

Peacock said last year the council worked with the state legislature to allow the region to establish an industrial development authority. The new law removed the requirement that a navigable waterway must be in the region to establish an authority. The council is working with Benton, Madison, and Washington counties to create a regional industrial development authority “that will allow us to focus on heavy industrial … advanced manufacturing type projects that will create a lot of really high-paying jobs.”

Amid strong population growth, Northwest Arkansas has resource constraints, including wastewater and energy capacity. The nationally competitive region needs more resources to meet demand. He noted that the advanced manufacturing projects will come with an increased infrastructure demand, “but we think the jobs ratio will be better for the resources consumed.”

Ron Maloney, economic development director for the Northwest Arkansas Council, said, “We have to be good stewards of the power we have right now so that we can handle industry as it comes and the growth of residents, which is not going to abate anytime soon.”

Still, he said data centers have significant property tax benefits to the area where they are built.

“The reason we think it fits so well in central and eastern Arkansas is, one, that’s Entergy territory,” Maloney said. “Entergy can generate its own power, transmit it and distribute it locally. In Northwest Arkansas, we have a different paradigm. We are predominantly but not exclusively just dealing with our co-ops. And then we do have SWEPCO, which does have generation in the region, but most of that generation goes somewhere else as well as to us.”

He said the electric cooperatives and Southwestern Electric Power Co. are building new power plants. The cooperatives’ new electricity generation will be spread across their footprint, and SWEPCO’s is being built in Texas and will need new transmission lines to reach its destination. “So there’s a lag there.”

Northwest Arkansas however, with it being in the national spotlight, “we are being constantly pinged for advanced manufacturing type projects, technology projects.”

Peacock added that “we’re excited for them. They’ve made a decision that they have the resources and capacity to take that on, and the injection into those economies and the long-term tax benefits are going to be great for a city like West Memphis. And they’re going to be able to reinvest that into their community.”