The two states at war over data centers

“Data Center Alley” in Northern Virginia is famous for its dense cluster of hyperscaler facilities. It’s been the center of media attention, protests, and lawsuits. It’s been called the “data center capital of the world” and “the backbone of the global internet”.

But among the states building data centers the fastest, Virginia no longer holds the top spot. Another state has been quietly but strongly rising, luring in developers, fast-tracking applications, and providing a legal framework for speedy construction. This year, data centers — like so much else — became part of the “everything” that’s bigger in Texas.

Texas now accounts for 15% of the 20,000+ proposed, built, and operational data center projects in Spark’s database. We looked at every plant, permit, and plan for a data center to figure out where the trends are heading — and what lies ahead for Virginia and Texas.

Incentives: Paying developers, or expecting them to pay?

Unlike most Americans, Texan legislators view data centers as a win.

In 2015, the state senate expanded tax incentives to include large data centers and extended how long those exemptions last. Data centers in Texas pay zero sales taxes on electricity, cooling systems, backup generators, and many elements of their hardware rack. To help provide those funds, the governor’s Texas Enterprise Fund offers grants to projects that bring jobs in-state.

Meanwhile, Virginia is starting to close its wallet to construction. This month, it approved the nation’s first tax on data center electricity use, at $0.011 per kWh. Rather than giving out grants, Virginia’s governor has called on data centers to pay more for transmission, concerned that costs will be passed to Virginians.

Fast tracks vs. legal fights

Virginia’s wallet isn’t the only thing turning against data centers.

Before 2025, legal fights over data centers in Virginia were rare. Across 2,060 VA projects that Spark tracked between 2019 and 2024, only 13 saw a legal challenge at all, and most of those fell flat.

That changed last year. The rate of decisions against data centers skyrocketed: 29 found last year, and 30 so far in 2026. Texas, on the other hand, has barely seen an uptick.

This trend kills projects both during construction and before capital touches the ground. With a legal challenge rate 2x as high as Texas’s, Virginia is no longer a reliable place for developers to build.

The powerful missing link in Virginia’s system

But beyond policy measures and legal challenges, Virginia is further constrained by a simple, physical barrier: Power.

Data centers require power, and a lot of it. In Virginia, that means working through the state’s homegrown energy company Dominion Energy, whose interconnection queues are ballooning. Interconnection will now take up to seven years for larger projects, according to the company, as more facilities battle for limited spots. Dominion has constrained the power that they have made available and is struggling to keep up with the demand, limited to studying only 10 projects at a time in a state where 75 GW of projects sit in the pipeline.

Here, too, Texas has found a quicker solution. ERCOT’s approach includes evaluating all the major queued projects in one batch study, cutting down reviews by an order of magnitude. The state’s “connect-and-manage” approach plans to add assets to the grid quickly before drowning them in requirements.

After incentivizing developers and providing legal support, Texas is quickly working to solve the biggest barrier to operation, while Virginia can’t keep up.

Virginia’s data center age didn’t last. Texas’s may be even shorter.

These trends show a clear fact: Texas is surpassing Virginia as the most fertile state for data centers. Texas has over $1T in announced capex across more than 2,800 planned or installed projects.

But the very factors that led to Virginia’s fall are on the horizon for Texas, too.

Public opposition is rising steadily in Texas as conservatives and liberals alike raise concerns about land usage, pollution, and electricity costs. Projects are increasingly suspended. And Texan governor Greg Abbott recently published a letter declaring his plan to “repeal sales tax exemptions” and “require data centers to pay for their own electric infrastructure” — the very same changes that turned Virginia’s trendline on its head. And this year, for the first time ever, Texas is suspending a bigger share of its data center projects than the Old Dominion.

Texas has passed Virginia to become the new home to data centers. But with opposition mounting and political fights beginning, it may not be able to stay king of the hill for long.

Spark AI’s database of data center projects, zoning codes, and community opposition tracks where data centers are encountering support and where resistance is climbing. Reach out and talk with us today.