In short
Virginia law does not yet require a hyperscale AI data center to directly purchase clean energy. However, the state’s utilities must meet a rising Renewable Portfolio Standard (RPS) under the Virginia Clean Economy Act (VCEA). Dominion Energy must reach 100 percent clean electricity by 2045. Va. Code § 56-585.5 The State Corporation Commission (SCC) is shaping rates and contracts that push large users toward clean energy. The data center sales and use tax exemption, worth an estimated $1.9 billion in 2025, is at the center of a legislative fight. A bill passed by the House (HB 897) would condition the exemption on clean energy procurement, a ban on co located fossil fueled generation, and non carbon dioxide emitting backup sources. 2026 HB 897 The Senate prefers full repeal. As of May 2026, the budget and the exemption’s fate remain unresolved. Virginia Mercury The SCC approved a new GS-5 rate class effective January 1, 2027 that requires 14 year contracts for new large load customers and high minimum charges for customers with 25 MW or more of demand. SCC news release, SCC fact sheet Dominion Energy offers voluntary green power programs, and the SCC is exploring large load flexibility tariffs. Dominion Green Power, SCC news release For AI data center developers and operators, the ground is shifting on multiple fronts.
What is the Virginia Clean Economy Act and how does it apply to AI data centers?
The Virginia Clean Economy Act (VCEA) sets mandatory clean energy targets for the state’s largest utilities, not directly for electricity customers. Dominion Energy, which serves the world’s largest concentration of AI data centers in Northern Virginia, must retire, by December 31, 2045, all electric generating units located in the Commonwealth that emit carbon as a by-product of combusting fuel to generate electricity, except for biomass-fired units that do not co-fire with coal. Va. Code § 56-585.5 Appalachian Power, serving the western part of the state, must do so by 2050.
The VCEA also requires Dominion to meet an increasing Renewable Portfolio Standard (RPS), which is the share of its total electricity sales that must come from renewable resources. The targets are as follows.
| Year | Dominion RPS Target |
|---|---|
| 2026 | 29 percent |
| 2030 | 41 percent |
| 2035 | 59 percent |
| 2040 | 79 percent |
| 2045 | 100 percent |
These targets force Dominion to build or contract for massive amounts of new solar, wind, and battery storage. The VCEA specifically requires Dominion to seek SCC approval for 16,100 MW of new solar and onshore wind by 2035, and up to 5,200 MW of offshore wind. Va. Code § 56-585.5 The Coastal Virginia Offshore Wind (CVOW) project, a 2.6 GW wind farm off Virginia Beach, began delivering power in March 2026 and helps meet that offshore wind target. Virginia Business, WorkBoat
The VCEA also sets a target of 3,100 MW of energy storage by 2035. vcnva.org And starting in 2025, at least 75 percent of the renewable energy certificates (RECs) used by Dominion for RPS compliance must come from RPS eligible facilities physically located in Virginia. Va. Code § 56-585.5
AI data centers in Northern Virginia consume about a quarter of the state’s electricity. They are the primary driver of load growth. Their demand directly influences how fast Dominion must build clean energy and what it costs. The costs of new solar, wind, and transmission are recovered through rates, so large industrial customers pay a share. However, the VCEA has a way for a large customer to avoid the RPS cost riders, specifically the Accelerated Renewable Energy Buyer (ARB) exemption.
The Accelerated Renewable Energy Buyer (ARB) exemption
An AI data center with more than 25 megawatts of aggregate load can opt out of the RPS cost charges by becoming an ARB. To qualify, the customer must enter into its own arrangements to purchase RECs from RPS eligible resources or bundled capacity, energy, and RECs from solar, wind, or zero-carbon electricity generation resources located in the PJM region and initially placed in commercial operation after January 1, 2015. Va. Code § 56-585.5 Once certified by Dominion, the customer is exempt from non bypassable RPS compliance costs, excluding offshore wind costs, in proportion to the RECs obtained relative to the customer’s total electric consumption. Instead, the customer takes direct responsibility for procuring the required renewable attributes. This is valuable because RPS compliance costs are expected to rise as the targets increase.
What is Virginia’s data center sales and use tax exemption?
Virginia provides a sales and use tax exemption on computer equipment, enabling software, servers, routers, chillers, and backup generators purchased or leased for use in an AI data center. This exemption is codified at Va. Code § 58.1-609.3(18). Va. Code § 58.1-609.3(18)
To qualify, an AI data center project must meet three thresholds,
- Be located in a Virginia city or county.
- Make new capital investment of at least $150 million (or $70 million in a distressed locality).
- Create at least 50 new jobs (or 10 in a distressed locality) that pay at least 1.5 times the prevailing average wage in that locality.
The exemption is scheduled to sunset on June 30, 2035. An operator can extend it to 2040 by investing at least $35 billion and creating 1,000 new jobs (100 at 1.5 times the state average wage). Further extension to 2050 is possible with $100 billion total investment and 2,500 jobs. 2025 SB 1196 fiscal impact statement
Current law contains no requirement that the AI data center use clean energy, limit carbon emissions, or meet any environmental performance standard. The exemption requires a minimum capital investment, new jobs paying at least one and one half times the prevailing average wage, and a memorandum of understanding with the Virginia Economic Development Partnership Authority. Va. Code § 58.1-609.3(18) For example, Amazon Web Services has invested $35 billion in Virginia AI data centers. Inside Climate News
The exemption’s cost to the state has grown enormously. In fiscal year 2025, the foregone revenue was about $1.9 billion, roughly 2 percent of Virginia’s $74 billion budget. Inside Climate News This has made it a prime target for lawmakers seeking to address the energy and environmental impacts of AI data center growth.
What clean energy conditions are proposed for the tax exemption?
In the 2026 legislative session, Delegate Sullivan introduced HB 897 to link the data center sales tax exemption to several clean energy requirements. The bill passed the House of Delegates in February 2026 but died in the Senate Finance and Appropriations Committee. 2026 HB 897
If enacted, HB 897 would add four main conditions,
- No co located fossil fuel generation. Starting July 1, 2027, an AI data center receiving the exemption could not have on site carbon dioxide emitting power plants, except for backup generators. This would block projects like the Balico campus in Pittsylvania County, which proposed a 3.5 GW natural gas plant on the AI data center site.
- Clean energy contracts. By July 1, 2029, the AI data center must contract for a percentage of its energy demand, capacity, and RECs from clean energy resources, as certified by the SCC. The bill does not set the percentage, and it delegates that to the SCC.
- Non carbon dioxide emitting backup power. The AI data center must transition backup generators to non carbon dioxide emitting sources, such as battery storage, on a schedule tied to the facility’s initial service date.
- Environmental and energy efficiency investment. For new AI data centers receiving a certificate of occupancy on or after January 1, 2030, the operator must demonstrate sufficient investment in environmental management and energy efficiency measures. The SCC would certify compliance.
The House budget proposal in April 2026 includes these concepts. However, the Senate’s budget proposal goes further, proposing to eliminate the data center tax exemption altogether. Virginia Mercury, Virginia Mercury, Virginia Mercury
Critical uncertainty: The two chambers adjourned their special session on April 23, 2026, without a budget agreement. As of May 2026, negotiations are ongoing behind closed doors. The final outcome could be condition based, repeal, or no change. Until a budget is enacted, the exemption’s future is unknown, making it difficult for AI data center projects to lock in equipment cost assumptions.
What is the new GS-5 rate class for large energy users?
On November 25, 2025, the SCC approved Dominion’s request to create a new electricity rate class, called GS-5, for customers with a demand of 25 MW or more. SCC Press Release, SCC Final Order, SCC Press Release, SCC Press Release, SCC Final Order, SCC Press Release, SCC Final Order The class takes effect January 1, 2027. Most large AI data centers will fall into this class, which is designed to protect other ratepayers if a massive load customer disconnects or reduces its demand.
The key features of GS-5 are,
- Minimum monthly charges. The customer must pay for at least 85 percent of its contracted distribution and transmission demand, and 60 percent of its contracted generation demand, every month, even if actual usage is lower. scc.virginia.gov, scc.virginia.gov
- 14 year capacity agreement. The customer commits to a 14 year term for its contracted capacity. Arcadia
- Exit fees. If the customer terminates early, it must pay significant exit fees.
- Enhanced collateral. The customer must post higher security, such as a letter of credit.
- Capacity reduction limits. The customer can reduce its contracted capacity by at most 20 percent, and only after giving 36 months’ advance notice. Any further reduction requires finding another qualifying customer to take over the released capacity. Arcadia
These terms lock AI data centers into long-term utility service and make it expensive to shift to on site generation or to relocate. However, they also provide the utility with the revenue certainty needed to finance the massive transmission and generation buildout required to serve data center load growth.
The SCC also approved Dominion’s base rate increases for 2026 and 2027 at $565.7 million and $209.9 million, below the company’s request. SCC Press Release The SCC set Dominion’s return on equity at 9.8 percent.
For context, Dominion’s capital expenditure plan for 2026 to 2030 is approximately $65 billion, with roughly 45% for transmission and distribution, 18% for new gas generation, and 13% for solar and energy storage, all driven by data center demand and clean energy goals. Utility Dive The GS-5 class is one piece of the mechanism to recover those costs.
What voluntary clean energy programs does Dominion Energy offer?
Dominion provides several programs that allow AI data centers to purchase renewable energy attributes or claim renewable energy usage, beyond the utility’s mandatory RPS compliance.
| Program | REC source | Cost (per kWh) | Cost (per MWh) |
|---|---|---|---|
| Green Power | Virginia and surrounding region | 1.2 cents | $12.00 |
| 100 percent Renewable Energy | Virginia and North Carolina | 1.36 cents | $13.60 |
| REC Select | National | 0.269 cents | $2.69 |
These programs do not change the physical electricity flowing to the AI data center. Instead, they transfer the environmental attributes (RECs) to the customer, who can then claim to match all or part of its usage with renewable generation. They are voluntary and can be used to meet corporate sustainability goals.
ARB certification
As described earlier, a large customer can also become an Accelerated Renewable Energy Buyer. Dominion maintains a process for ARB certification. Dominion ARB Certification page Once certified, the customer is exempt from the RPS cost riders on its utility bill. This can be more economical than paying the riders and separately buying RECs, but the customer must procure its own RECs or bundled contracts directly, which may involve long-term power purchase agreements.
What is the SCC doing about data center load flexibility?
The SCC opened a docket in 2024 (Case No. PUR-2024-00144) to examine the effects of large electric loads, including AI data centers, on Virginia’s utilities and ratepayers. SCC docket, SCC news release (2024), SCC news release (2025) The SCC held technical conferences in December 2024 and December 2025. Topics included classifying AI data centers by their ability to reduce load, using physical and non physical load reduction technologies, integrating flexibility into utility demand side management programs, and a concept called flexible flexibility. That concept would let an inflexible large-load customer purchase flexibility from other non-contiguous loads. SCC Technical Conference Scheduling Order
Amazon Data Services filed comments after the December 2025 conference. Amazon argued that any large load flexibility tariff should be voluntary, avoid one size fits all curtailment mandates, be tied to real system constraints, and offer compensation that reflects the value of the service provided. Amazon Comments
No final rule or tariff has emerged from this docket as of May 2026. If the SCC eventually adopts a flexibility tariff, it could create a new revenue opportunity for AI data centers equipped with battery storage or flexible operations, and it might influence the clean energy strategies of operators who can shift load to times when renewable energy is more available.
How do local land use decisions affect clean energy rules for AI data centers?
County governments in Northern Virginia have significant power over AI data center siting, and they are increasingly using that power to influence energy choices, even if not through explicit clean energy mandates.
- Loudoun County, the core of Data Center Alley, ended by right AI data center development on March 18, 2025. Now new AI data center projects in the Industrial Park, General Industry, and Mineral Resources-Heavy Industry zoning districts require a Special Exception permit and a public hearing. Loudoun County Phase 1 page, NACo analysis The county has not imposed direct clean energy conditions on permits, but the process gives opponents a forum to raise energy and environmental concerns. For example, the Belmont Innovation Campus was originally proposed at 4.8 million square feet but was reduced to 1.3 million square feet after community opposition. Baxtel
- In Pittsylvania County, the proposed Balico AI data center campus co located with 3.5 GW of natural gas generation faced a planning commission recommendation for refusal. This highlights how local bodies can block fossil fueled on site power.
- In Fairfax County, Dominion’s transmission line proposal to serve a 176 MW AI data center drew homeowner association opposition, citing proximity of high voltage lines to homes. Law firm analysis
These local dynamics can slow projects, increase costs, and push developers toward solutions that are more acceptable to communities, such as on site battery storage instead of diesel backup, or off site renewable power purchase agreements instead of on site gas.
What are the key uncertainties and open questions?
Virginia’s clean energy framework for AI data centers is in the middle of a major transition. Several critical issues remain unanswered.
- Tax exemption fate. The budget standoff between the House (attaching conditions) and Senate (full repeal) could end in any of several ways. Until a budget is adopted, the financial planning for new AI data centers carries a large risk.
- Specific clean energy percentage. Even if a condition based bill passes, the SCC must still define the required clean energy contracting percentage, a process that could take years.
- Dominion’s resource plan and gas reliance. Dominion’s preferred resource plan keeps natural gas at about one third of capacity in 2045. Critics have questioned whether this complies with the VCEA mandate. American Action Forum, Southern Environmental Law Center
- Load flexibility tariff. The SCC could eventually order Dominion to offer a flexibility tariff, but the terms, including mandatory versus voluntary participation and compensation levels, are unknown.
- CVOW legal challenges. The offshore wind project faced a federal stop work order in 2025, adding $228 million in costs, and further appeals are possible. Virginia Business
- Local policy shifts. Other counties may follow Loudoun in restricting data center development, potentially linking permits to clean energy or efficiency standards.
Key takeaways
- There is no direct statutory clean energy mandate on AI data centers in Virginia today, but the VCEA’s utility requirements and the ARB exemption strongly influence the market.
- The data center sales tax exemption is under intense legislative pressure. Whether it survives, gains conditions, or is eliminated will be decided in the budget process.
- The new GS-5 rate class locks large AI data centers into long-term utility contracts with high minimum demand charges, raising the cost of flexibility.
- Dominion’s voluntary green programs and the ARB path provide options for AI data centers that want to claim renewable energy usage or avoid RPS cost riders.
- Local land use controls increasingly shape project feasibility, creating an indirect pressure toward cleaner backup and less visible infrastructure.
- Several major regulatory and legal proceedings, including the SCC load flexibility docket, Dominion’s resource plan, and CVOW litigation, will determine the long-term clean energy direction.
Frequently asked questions
Q:Is there a Virginia law requiring AI data centers to use a certain amount of clean energy?
A:No. The VCEA requires utilities to meet clean energy targets, but places no direct obligation on electricity customers. The proposed HB 897 would attach clean energy conditions to the tax exemption, but it did not become law. 2026 HB 897
Q:What happens if the data center sales tax exemption is repealed?
A:AI data center operators would pay Virginia’s sales tax (5.3 percent to 7 percent, depending on the locality) on equipment purchases. This could significantly increase project costs. The exemption was worth $1.9 billion in 2025, so its repeal would shift a large financial burden onto AI data center operators. Inside Climate News
Q:How can an AI data center avoid paying the RPS compliance costs on its electricity bill?
A:Qualify as an Accelerated Renewable Energy Buyer (ARB). You must have over 25 MW of aggregate load and enter into your own direct REC or bundled renewable energy contracts. Once the Commission certifies your ARB status, you will be exempt from non-bypassable RPS compliance costs, excluding offshore wind costs, in proportion to the RECs you obtain relative to your total electric consumption on an annual basis. Va. Code § 56-585.5
Q:Does the new GS-5 rate class require AI data centers to use clean energy?
A:No. The GS-5 rate class is about cost allocation and reliability, not energy source. It imposes long contract terms and high minimum billing demands, but does not dictate what generation fuels the electricity. SCC Press Release
Q:Can an AI data center co locate a natural gas plant on the same site and still get the sales tax exemption?
A:Under current law, yes. The Balico proposal in Pittsylvania County attempted this. However, if HB 897 becomes law, co location with a carbon emitting generating facility (except backup) would disqualify the AI data center from the exemption starting July 1, 2027. 2026 HB 897
Q:What are Dominion Energy’s voluntary green power programs?
A:They are programs that sell RECs to customers who want to claim renewable energy usage. The Green Power program costs 1.2 cents per kWh using Virginia regional RECs. The 100 percent Renewable Energy program costs 1.36 cents per kWh using Virginia and North Carolina RECs. REC Select costs 0.269 cents per kWh for national RECs. Dominion Green Power
Q:Is Dominion planning to build small modular nuclear reactors for AI data centers?
A:Yes. Dominion and Amazon signed a memorandum of understanding in October 2024 to explore development of an SMR with at least 300 MW of capacity near the North Anna site to support Amazon’s AI data centers. Amazon separately announced a partnership with X-energy to deploy more than 5 GW of nuclear capacity. Dominion Energy, Amazon, Utility Dive
Q:What is the SCC load flexibility docket about?
A:It is an investigation into whether and how large electric loads, such as AI data centers, can be compensated for reducing their power consumption when the grid is stressed. Amazon has filed comments arguing for a voluntary, commercially reasonable approach. The SCC has not yet issued a final order. SCC docket, Amazon Comments
Q:How does Loudoun County’s zoning affect clean energy requirements?
A:Loudoun’s end of by right AI data center development means every new project must go through a public hearing. This creates an avenue for community demands related to energy, noise, and environmental impact. The county has not adopted a formal clean energy mandate, but the process can lead to negotiated commitments. Loudoun County white paper, Loudoun County Phase 2 project plan, Loudoun County Data Center Standards, Loudoun County Phase 2 Data Center Standards
Q:What is the biggest unknown for AI data center developers in Virginia right now?
A:The outcome of the 2026 budget negotiations. The House wants to condition the sales tax exemption on clean energy, while the Senate wants to eliminate it entirely. The result will materially affect the cost of building and equipping AI data centers. Until a budget is passed, projects are in limbo. Virginia Mercury
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Junde Liu, JD, LL.M. (Taxation) candidate at UF Law. Originally published on Compute Law Blog. This article is general information and does not constitute legal advice. Reading it does not create an attorney client relationship. The reader should not act on the basis of any content here without first consulting a licensed attorney in the relevant state. Last reviewed for accuracy May 23, 2026.