Pennsylvania is on the short list of destinations for cloud computing and artificial intelligence (AI). However, the commonwealth – thanks to ill-advised policies pushed by Gov. Josh Shapiro – remains ill-equipped to handle this emerging market.
On Monday, the governor announced a $20 billion investment by Amazon to develop data centers statewide. Though a laudable investment, the governor’s publicity stunt highlights a glaring issue: State policies make it extremely expensive to set up shop in Pennsylvania and tap into the state’s abundant energy resources.
And the governor’s proposals to address this issue will actually make things worse.
Shapiro’s policies to reduce the amount of reliable electricity are the most concerning.
Even without the new influx of data centers, electricity costs are rising in Pennsylvania. On June 1, utility companies increased rates statewide. These companies regularly adjust rates based on market conditions.
And those conditions aren’t great for ratepayers. In this year’s first quarter, wholesale prices in Pennsylvania were up 44%.
What are driving costs? It’s simple supply-and-demand economics. Supply continues to dwindle as regulations force reliable power plants to retire prematurely and force-feed more unreliable solar and wind energy into the state’s energy portfolio.
Meanwhile, demand – driven by AI – keeps escalating.
AI guzzles electricity. A ChatGPT query devours 10 times more electricity than a conventional Google query. To satiate AI’s growing power needs, conservative estimates suggest the United States needs at least 18 gigawatts of additional grid capacity by 2030 – roughly three times the annual consumption of New York City.
Tech companies have already begun to stake claims for increased energy capacity. Case in point: Microsoft’s recent reboot of Three Mile Island. Partnering with Constellation Energy, the tech giant will commandeer the once-shuttered nuclear power plant to power its growing AI capabilities with around-the-clock energy.
And while such deals are great for Big Tech, Pennsylvania households and small businesses remain stuck with ever-increasing electricity bills. Even before the recent rate hike, new polling reveals 78% of Pennsylvanians report increased energy bills over the past two years.
Meanwhile, misguided lawmakers push policies that only exacerbate the problem. For example, Gov. Shapiro’s Lightning Plan – which includes a carbon-tax scheme and mandates more unreliable “green” energy – will add about $157 billion in statewide electricity costs by 2035, according to a new report by Always On Energy and the Commonwealth Foundation. These added costs will double household electricity bills.
So long as these ill-advised policies continue to throttle capacity and generation, the grid will remain a bottleneck to future innovation in Pennsylvania.
To attract new data centers, lawmakers have also flirted with an age-old yet ineffectual solution: corporate welfare. Despite the political appeal, government favors (i.e., tax incentives and subsidies) to attract new businesses often fail.
Pennsylvania’s Independent Fiscal Office found that the commonwealth’s tax credits netted a lousy return on investment, about 25 cents on the dollar.
Others have proven useless: The Pennsylvania Economic Development for a Growing Economy (EDGE) tax credit, which Shapiro wants to expand. has had no takers since its inception in 2022 – not a single dollar.
The best medicine is regulatory reform. Lawmakers should revise electricity regulations to account for reliability and consider all infrastructure costs associated with electricity generation. Also, energy markets need a more predictable permitting process for energy extraction and power plant construction.
Shapiro alluded to fast-tracking permitting for new data centers. Competing with neighbors like West Virginia, which recently passed a bill allowing “microgrid” districts for data centers with standalone power plants, could be beneficial. But there again, the track record of industry-specific reforms is spotty.
Nearly a year ago, Pennsylvania passed the Streamlining Permits for Economic Expansion and Development (SPEED) program to create an expedited permit review and approval process associated with energy production. Today, SPEED remains under development. Shapiro’s call for expedited permitting for data centers appears to be yet another half-measure that won’t accomplish much.
Pennsylvania can’t afford to stop with just one industry. Regulatory reform must be comprehensive and universal, freeing up all economic sectors from onerous red tape.
Pennsylvania, with more than 160,000 individual regulations and restrictions throttling genuine economic development, is one of the most-regulated states. Research suggests a 36% cut in regulations would yield 1% growth in Pennsylvania’s GDP, according to a report coauthored by the Competitive Enterprise Institute and the Commonwealth Foundation.
Before Pennsylvania’s Wyoming Valley can become the next Silicon Valley, the commonwealth must rethink its strategy. Lawmakers must cut red tape, not blank checks to big corporations. Moreover, they must unleash affordable energy, not shackle it with climate-alarmist policies. Without genuine regulatory and energy reform, the commonwealth won’t be able to power the future and will be left in the dark.
