- The data center rush is on in Michigan
- At least 10 communities have been approached by data center developers, while utilities are quietly negotiating deals
- Here’s how the industry might impact the environment, state revenues and power rates
Michigan is diving headlong into the national debate about hyperscale data centers as tech companies race to ink deals for land with ready access to electricity.
Developers are publicly pursuing projects in at least 10 Michigan communities — all in the Lower Peninsula — while others are in confidential negotiations to buy power from the state’s major electricity utilities.
The data center industry is expected to nearly triple by 2030, fueled by the growth of artificial intelligence and cloud computing. Tech companies are racing to build facilities as soon as possible, often facing stiff resistance from local communities and worries about environmental impact.
“The scale of it is the biggest growth in electricity demand that we’ve seen since the 1970s, and maybe even faster than that,” said Douglas Jester, managing partner at the energy consulting firm 5 Lakes Energy. “It’s a big shock to how the power system and power system regulation works.”
So far, Michigan has none of the massive hyperscale data centers owned by the likes of Google, Microsoft and Meta. The state has 57 smaller data centers, according to the online database Data Center Map.
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But that could soon change. Oracle, OpenAI and Related Digital have cleared key land use hurdles needed to build a $7 billion data center campus in Saline Township, south of Ann Arbor. They expect to open the facility in 2027.
Here’s what to know as the industry makes inroads in Michigan:
What is a data center?
A data center is a building or buildings housing computer servers used to store, process or distribute vast quantities of data.
They can range in size, but much of the controversy surrounding data centers is focused on the massive so-called “hyperscale” facilities that tend to occupy hundreds of acres and gobble as much electricity as a large American city to fulfill the computing needs of giant tech firms like Google, Microsoft and Oracle.
The windowless, low-slung buildings resemble Amazon fulfillment centers from the outside. But inside, hundreds of thousands of computer servers operate around the clock, providing cloud storage of photos, videos and websites or training artificial intelligence models to write term papers and perform other computing tasks.
Why is Michigan suddenly seeing so much interest in building them?
Two words: Tax breaks.
Looking to tap into a global boom, Michigan lawmakers last year passed a law exempting large centers from the state’s 6% sales and use tax. To qualify, each data center operator must invest at least $250 million and create 30 jobs paying 150% of the local median wage.
The bill received bipartisan support and opposition, with advocates lauding the breaks as an economic development tool while skeptics decried them as “corporate welfare” projects that could hurt the environment.
The subsidies have functioned as intended, attracting a wave of interest from data center developers looking to do business in Michigan. At least 35 other states have or are considering similar incentives, according to one report.
“We only locate in states that recognize data centers as the modern-day equivalent or the successor to the manufacturing and agricultural and mining industries, which have always joined full sales tax exemptions on all the stuff they buy,” said Steve DelBianco, president and CEO of the tech industry group NetChoice.
Beyond tax breaks and friendly politics, developers look to do business in places with cheap, accessible land, water and electricity.
DelBianco said demand is so great that developers need to build a new hyperscale facility every week, but critics worry that artificial intelligence companies are overvalued and communities could get stuck with data centers that aren’t needed.
How many are planned and where?
Bridge Michigan has identified at least 10 communities in which developers have publicly unveiled hyperscale data center proposals in various stages of development.
It’s likely an incomplete tally — proposals often become public only after developers approach local officials seeking zoning changes or other needed approvals. That can be months after they have quietly secured land and electricity access.
It’s also unlikely every proposal will be built. For example, a plan in Monroe County’s Dundee Township is uncertain after public outcry prompted township officials to enact a moratorium on data center development. Another in Kalkaska County would rely on public land that state officials have said they have no desire to sell. A proposal in Kalamazoo County is also on hold after public pushback.
Still, the state’s major utilities anticipate multiple data centers coming online in Michigan in the coming years, in keeping with a nationwide trend.
Consumers officials are forecasting 2.65 gigawatts in new demand in the utility’s territory, while DTE officials are in late-stage negotiations for 3 gigawatts’ worth of data center capacity on top of the Saline Township proposal.
For perspective, the entire state of Michigan’s peak electrical demand is about 18 gigawatts. If all of that comes to fruition, Michigan’s peak energy demand could surge 39%.
Bridge Michigan polled the state’s other five investor-owned utilities on their projected data center power demand and none disclosed any pending deals.
How will they be powered?
If all that demand materializes, Michigan’s utilities would need to build more power plants or renewable energy arrays to keep up.
The Saline Township facility alone will demand 1.4 gigawatts, an amount equivalent to more than a million homes that will increase DTE’s system-wide demand by 25%.
DTE has said it can absorb that spike by ramping up production at existing power plants, plus buying power on the open market and building battery storage facilities that can be recharged during off-peak hours.
But long-term, both DTE and Consumers officials have said they’ll likely build new fossil fuel plants as they absorb new demand. The utilities insist they can do so while meeting Michigan’s 2040 deadline to achieve 100% clean energy, but have not provided specifics.
Spokespeople for both utilities said they will reveal further details next year, when they file what’s known as integrated resource plans with the Michigan Public Service Commission.
“We look forward to working with stakeholders and the Commission to chart the best path forward for our customers and the state,” DTE spokesperson Jill Wilmot said.
DelBianco, of NetChoice, said data center developers have a “preference” for clean energy but “speed to market is absolutely key.” Because wind and solar arrays are slower to build out, developers are turning to fossil fuels for now.
Michigan’s data center tax break law requires the facilities to get 90% of their electricity from clean energy within six years after being built. Environmentalists say they’ll be closely reviewing data center electricity contracts to make sure they comply.
Will they use lots of water?
Depending on the technology used to cool servers, data centers can consume vast quantities of water or relatively little.
Most data centers use evaporative cooling, a water-intensive process by which water vapor is used to cool equipment. That’s the plan for some of the proposed data centers in Michigan. In Augusta Township, for instance, the plan is to draw more than 1 million gallons daily from the local water utility. Local water officials say the system has plenty of excess capacity because of the 2010 closure of the Willow Run General Motors powertrain plant, which once demanded millions of gallons daily.
The Saline Township data center will instead rely on closed-loop technology in which cooling water is recycled through the system, reducing a facility’s water use to that of a typical office building.
The water savings come with a tradeoff: Closed loop cooling gobbles up more electricity because the cooling water must be repeatedly re-chilled.
How much money will taxpayers lose because of subsidies?
At least $90 million through 2050, according to a Senate Fiscal Agency analysis.
It’s likely much more than that, if Michigan’s experience is anything like that of other states with data center exemptions. In Illinois, for instance, a single Facebook data center has received $287 million in tax benefits in exchange for investing $4.6 billion.
Developers of the Saline Township data center have called it a $7 billion investment — an amount that would trigger some $420 million in tax exemptions if every invested dollar qualified for the subsidy.
Beyond the state-level exemptions, data center developers often seek local property tax breaks worth millions of dollars annually. The Saline Township facility, for example, will get a 50% discount on local taxes.
How do data centers affect electricity rates?
It depends how utilities structure their contracts with the new customers.
Historically, rising power demand has helped keep electricity rates down by creating more customers to help maintain the poles, wires and other fixed costs of the energy grid.
Done right, adding data centers to the system could have a similar effect, said Michigan Public Service Commission Chair Dan Scripps. But the sheer quantity of power they demand poses challenges because “we’re talking about gigawatt additions at a time.”
Transmission infrastructure for the Saline Township data center alone is projected to cost $500 million, according to figures DTE submitted to the Public Service Commission.
If Consumers Energy’s projected data center demand materializes, company officials anticipate transmission costs of up to $780 million.
Some studies claim data centers will increase power bills, while others have found the added load growth caused by data centers helps lower rates.
Jester said the impact on rates in Michigan will depend how utilities structure their contracts with data center developers.
State law requires data centers to absorb the cost of system upgrades meant to serve them so ratepayers don’t wind up subsidizing the industry’s hefty energy use.
In early November, the Michigan Public Service Commission approved a rate structure for data centers in Consumers Energy territory that aims to protect residents by locking data centers into long-term contracts and requiring Consumers to prove that the facilities will pay all costs for infrastructure that serves them.
That order doesn’t apply to DTE Energy, which wants to negotiate ad hoc contracts with customers.
It filed a draft 19-year contract for the Saline Township data center with state energy regulators this month and requested swift approval without a public hearing — prompting howls from environmentalists and Michigan Attorney General Dana Nessel.
“Our energy future is far too important to leave to the rushed and secret negotiations of the companies standing to profit most from our ratepaying utility customers and the decisions of the MPSC,” Nessel said in a statement Tuesday.
How many jobs do they provide?
Despite their size, data centers typically provide few direct, permanent jobs. They function primarily as warehouses for computers, with little ongoing need for human labor.
Each facility in Michigan must employ at least 30 people to qualify for sales and use tax exemptions. Developers of the Saline Township data center have said they will hire 450 people.
But some corporations have a history of failing to deliver on promises, including data center developers.
Why do they all seem to be built on farmland?
For the same reason subdivisions, big box stores and factories keep popping up on farmland: It’s a cheap and easy place to build.
“It’s already cleared,” said Sarah Mills, a regional planner who directs the University of Michigan’s Center for EmPowering Communities. “That helps make development easy for anything.”
Hyperscale data centers, whose massive buildings are often the size of multiple football fields, have the added need for vast tracts of land.
But not all farmland is created equal: Developers tend to seek out properties adjacent to high-voltage power lines capable of transporting vast quantities of energy.
That’s also true for wind and solar developers, Mills noted, which is why “it’s some of the same communities that are getting approached for energy and for data centers.”
This article first appeared on Bridge Michigan and is republished here under a Creative Commons Attribution-NoDerivatives 4.0 International License.