Questionable data center assumptions

Advocates contend facilities would provide economic and environmental benefits; experience suggests otherwise.

An alliance of environmental, community organizations and local governments support a plan to build massive data centers in two upstate towns, including Somerset in Niagara County. 

Project backers contend the data centers would help the environment, provide jobs to displaced workers and replenish the tax coffers of local governments.

somerset coal plant datacenter

A sign greets visitors to the Town of Somerset, located on Lake Ontario.

 “It really is a win-win-win for the community, the environment and for workers,” Lisa Dix, senior New York campaign manager for Sierra Club’s Beyond Coal Campaign, told Investigative Post.

There is reason to question those assumptions, however.

The project calls for new steel structures to be built on the near-defunct coal plant sites. The facilities would house rows of computer servers, providing computing power for cloud storage, artificial intelligence or video streaming. 

The Sierra Club and other environmental groups count on project developers to use renewable energy, including hydropower and solar to power them.

Yet, the developers of the plan have obtained just 10 percent of the hydropower they requested from the New York Power Authority to operate them. Absent a much larger allocation from NYPA, the data centers could end up using a lot of power generated by natural gas or nuclear plants.

Developers and supporters say the project will produce jobs to replace those being lost at the coal-fired power plants. In their heyday, the plants employed hundreds of workers; today, the Somerset plant employs 56 and 44 work at the Lansing facility.

Together, the server farms would need 160 full-time workers paid salaries between $40,000 and $60,000 annually.

When assessing hydropower allocation for the Somerset facility, the power authority gave the Somerset plan a poor rating on a jobs-to-megawatt scale it uses when determining energy allocations.

The state adopted regulations in May requiring all power plants meet tougher limits on carbon dioxide emissions. That means coal power production statewide will stop by 2020.

“There’s an opportunity here for a transition of this property and we think that the state certainly has a responsibility so we’re not left as one of the losers in this energy policy,” said Somerset Town Supervisor Daniel Engert.


Jim Heaney discusses our coverage on The Capitol Pressroom


Production at the plants has dwindled in the past decade, as regulatory forces and availability of cheaper energy sources such as natural gas have snuffed out coal-fired power. In that time, work dried up and property tax revenue fell.

Significant tax revenue from the project could be a long time coming. Subsidies historically offered to data center developers have allowed for greatly reduced taxes for extended periods, sometimes helping companies avoid paying them altogether. That means local governments often wait years before they receive any significant tax revenues.

“Unlike some other projects in the state which have created a bad precedent here, it should not get any subsidy,” said E. J. McMahon, research director at Albany’s Empire Center, a free-market public policy think-tank. “Let the private sector build data centers if there is a need for a data center.”

Both plants are owned by Heorot Power, a subsidiary of GSO Capital Partners, which is owned by global private equity firm the Blackstone Group. Beowulf Energy, a separate company, operates the facilities. The Cuomo administration is in discussions to award state subsidies to help fund the projects, estimated to cost $650 million.

Officials from the Empire State Development Corp., Blackstone and Beowulf declined to be interviewed for this story. 

A green energy promise 

For Sierra Club and other environmental supporters of the proposal, the use of hydropower and solar energy to run the data centers is key. But availability of renewable energy remains up in the air.

The developers asked for 125 megawatts of low-cost hydropower from NYPA to power the energy-hungry computer facilities. So far, NYPA has allocated only 12. NYPA awarded 10 MW of hydro for the project in Somerset, though they asked for 100. For Lansing, the firm wanted 25 MW but will get 2. And because Lansing’s will come through a program that blends hydro and market-based power, only half of it is guaranteed hydro.

“We look forward to continuing to work with the Cuomo Administration and NYPA in the days ahead to procure additional energy to support the creation of new jobs and make the entire project a vital component of the State’s burgeoning Green Economy,” Michael Enright, managing director of Beowulf Energy and Blackstone-owned Heorot Power Holdings, said in a statement.

Jerry Goodenough, a local operations executive for both power plants, gave a Beowulf presentation to residents and lawmakers in June about the data center proposal. Ultimately, he said if the firm does not get all the hydropower energy it needs, the data centers would run with energy from the grid. The majority of New York’s grid power comes from natural gas, hydropower and nuclear.

There is also the promise of solar. The developers say that plan would employ local union labor to build the data centers and, eventually, as much as 90 MW of on-site solar. Still, the company has indicated building for solar power generation would be a separate project.

During his presentation, Goodenough recalled how the firm lost two bids in 2017 and 2018 for funding from New York State Energy Research and Development Authority for large-scale solar proposals.

“Solar is really expensive to do, especially in upstate New York,” Goodenough said. “I do not believe we can power New York State with solar. I don’t understand how that can happen.” 

Data centers, even small ones, require lots of energy to operate hulking computers in chilled rooms. As a result, they create millions of tons of carbon pollution annually. Data centers in the U.S. are projected to consume approximately 73 billion kilowatt hours of electricity next year. That would generate the carbon-emitting equivalent of 8.5 coal-fired power plants.*

Our Weekly Newsletter

The facilities proposed for the two towns would be among the world’s largest by at least one measure: computing capacity. They would support as much as ten times the amount of computing power the Yahoo data center in Lockport had in 2015.

“You need large-scale wind or solar because you’re talking about a very large demand,” said Gary Cook, who leads the RethinkIT project at Greenpeace, which analyzes the environmental impact of digital technology. “There’s a very limited allotment of regional hydro — where is the rest coming from?”

At this point, the companies will not say where or how they will obtain the amount of renewable energy they’ll need to run such large facilities.

“They are going to become a massive consumer of power,” said Lansing Town Supervisor Ed LaVigne, remarking on the irony of a plant that once created power now gobbling it up.  “Isn’t that wild?”

Support…with strings attached

The Environment New York Research and Policy Center in 2014 deemed the Somerset power plant one of New York’s dirtiest. Among the state’s top carbon emitters, in 2011 it puffed out nearly 4 million tons of greenhouse gases. That’s the same amount of emissions that 713,000 cars would produce.

The Lansing plant has been a polluter, too. Groundwater monitoring of that facility reported in 2010 by environmental groups showed its coal ash landfill contaminated underlying groundwater with selenium, cadmium and arsenic above acceptable federal and state levels.

To some climate-conscious supporters, the data centers seem like an appealing replacement to coal-fired power plants that emit toxins. Forty-six environmental and community organizations including Sierra Club, New York Public Interest Research Group, New York Climate Advocacy Project and Concerned Citizens of Lansing sent a letter to Gov. Andrew Cuomo in early September supporting the data center plan — but with contingencies.

They called on him to ensure the plant owners surrender their air operating emissions permits and agree not to pursue future combustion-based power generation at the sites.  

“They need to be in good faith releasing their air permits to show that they are really abandoning fossil fuels for good on both of these sites,” said Dix.

The letter demanded the state outline “clear and binding requirements” preventing the owners from re-powering them with fracked gas, for example. There is no indication as to whether the companies would agree to this demand.


Data centers associated with huge subsidies, modest job creation


Monitoring data center operators for their energy use isn’t easy. A 2017 Greenpeace report suggested evaluating whether data centers use renewables is “far from straightforward, especially given the inherent invisibility of the electricity flows and the lack of transparency and weak reporting standards for corporate renewable purchases.”

The Somerset and Lansing power plant sites are considered good locations for data centers since they are in a cool climate and already connected to the power grid. Computer servers need to be in chilled environments which compounds the need for lots of energy to run data centers.

“Data center guys chase energy,” said Goodenough during the presentation in Lansing. “That’s what they’re looking for.”

Tough jobs transition

The Cuomo administration says its coal phase-out reflects broader goals laid out in its 2019 executive budget to establish clean energy projects, create Green New Deal jobs, and ensure a “just transition” away from fossil fuels.

“This is what a model, just transition should look like as we’re transitioning from fossil fuels in New York to a clean energy economy,” said the Sierra Club’s Dix.

The group has aligned with New York State Building and Construction Trades in support of the project. Dix co-wrote an op-ed published in The Buffalo News in June along with Jim Cahill, president of the union group, calling the project “the next step on the Green New Deal.”

Green New Deal programs promise to produce work opportunities in clean energy fields. Indeed, the Sierra Club supports the data center proposal partly in the belief the jobs it will create for the plants’ remaining coal workers will fit into the renewable energy industry category. Whether data centers that suck up energy and emit tons of carbon should be considered renewable energy jobs is questionable.

Plus, it is unclear whether today’s coal plant workers will shift readily into the technician, engineer and information technology roles needed in data centers. For many workers in the Somerset and Lansing plants, transition into data center roles would require training for new skills.

“It’s really a completely different skill set,” said Goodenough during the presentation in Lansing. “We’ll do what we can to try to figure out how to turn a guy who’s welded all his life into a guy who is now going to be doing [data center technology] work.”

He added, “I think there will be a few people who just simply say, ‘I’m good, I’ve had it,’ and kind of retire.”

State Sen. Robert Ortt, who represents Somerset, said “several” union and Beowulf representatives have told him “there are a lot of transferable skills.” But retraining with support from the state will be necessary, he said. 

Neither the developers nor the state has directly addressed training in relation to transition from coal power to data center work.

Abatements could stall tax benefit

State and company officials are silent as to whether the state or local municipalities might award tax breaks for the Somerset and Lansing data centers. However, many supporters of the proposal point to the need to maintain tax revenue currently derived from the power plants. 

“Anything that is going to continue to employ people, to continue to provide job opportunities and a tax base, I’m going to always support the community on that — because the impact of that plant going out and no one coming behind probably means at some point the end of the school district as we know it,” said Ortt.

Both plants have operated at a fraction of their capacity in recent years as use of coal power has declined. The Lansing plant ran at less than 7 percent capacity between February 2018 and June 2019. The Somerset plant ran below half capacity between February 2015 and April of this year, and produced no electricity in May or June. 

Over the past 10 years, property taxes for both plants fell from a combined $21.5 million to $3.6 million.


Check out our upcoming event at the Buffalo Irish Center


If history is any indication, construction of data centers would not necessarily mean a large or immediate uptick in property or sales tax revenue for local governments. 

Yahoo built its data center in the Town of Lockport in 2009 and expanded it in 2013. That work was facilitated by $478 million in state and local subsidies, most of it in the form of property and sales tax abatements. The complex, now owned by Verizon through its Oath Holdings subsidiary, will not be required to pay 100 percent of its property tax bill until 2035.

In its 2016 “Money Lost to the Cloud” report, subsidy watchdog Good Jobs First found at least 26 states had incentive programs designed specifically for data centers. Most featured sales and “use” tax breaks on equipment, and some sweetened the pot with income and property tax abatements.

“Data centers can have a large, positive impact on collected taxes, but only if they pay them,” the report concluded. “When state and local governments abate sales, property and even income taxes, those benefits can evaporate.”

“Coal communities “should not subsidize their coal plants,” said Mark Haggerty of nonprofit research group Headwaters Economics in Montana. “It means they’re giving up their tax revenue for something that isn’t going to transform their community into something that is more durable over time.”


*The original version of this story incorrectly reported the coal-fired power plant equivalent of projected U.S. data center carbon-emissions in 2020.