Constructing the future

THE ISSUE:

With the proliferation of artificial intelligence, the internet of things, 5G networks, and other technology that connects people and devices around the world, data center capacity demand has surged, leading to a wave of data center construction.ⁱ  But this digital transformation comes with an environmental tradeoff, largely stemming from the immense power consumption needed to operate data centers.

Some of the largest data centers can require more than 100 megawatts of power capacityⁱⁱ—enough to power approximately 80,000 US households.ⁱⁱⁱ  Moreover, by 2030, data centers could consume up to nine percent of US electricity generation, which is more than double the amount currently used.^iv

Data center developers are increasingly looking for strategies to reduce and offset their carbon footprint, with some of the most ambitious hyperscalers looking to achieve net zero carbon emissions by 2030.^{v vi vii} Savvy data center developers are implementing innovative approaches to meet construction and operational sustainability goals. With tax credits available under the Inflation Reduction Act (IRA), data center developers have more flexibility in how they deploy capital to implement these innovative solutions. However, whether companies avail themselves of incentives under IRA or not in their missions to improve the energy efficiency of their data centers, there is increased scrutiny from boards of directors over compliance with documenting energy usage and tracking carbon emission.

INSIGHTS:

The IRA was passed in 2022 and is intended, in part, to incentivize investment into domestic energy production while promoting clean energy.^viii The IRA introduced more than $369 billion in clean energy tax incentives that can be used to support sustainability strategies, such as:

• Building onsite power generation that uses off-grid solar power
• Replacing older, less efficient equipment
• Using hydrogen fuel cells for primary and backup power

However, for companies to qualify for the credits and incentives, projects must meet prevailing wage and apprenticeship (PWA) requirements for their renewable energy projects.^ix Satisfying these requirements increases the amount of the base credit equal to five times the base statutory credit. To put this in perspective, a qualifying capital investment with eligible basis of $750M can have a 6% investment tax credit of $45M. If the project meets the prevailing wage and apprenticeship requirements, that same project may qualify for a 30% investment tax credit of $225M.

HOW DELOITTE CAN HELP:

Deloitte’s Infrastructure & Capital Projects team advises clients with renewable energy projects, including for assets such as data centers and semiconductor fabrication plants (fabs), on strategies to meet their sustainability objectives, and help to plan sustainability programs, monitor progress and compliance, and report to boards of directors and the Internal Revenue Service (IRS). We assist clients across the project life cycle from real estate location selection, financial modelling, construction planning and oversight, and operations and maintenance.

Deloitte can help companies:

• Develop a strategy and roadmap to help companies achieve their sustainability goals including scenario planning.
• Plan data center or fab operations maintain compliance with local, national, and international environmental, health, safety, and sustainability regulations.
• Perform a current state assessment and gap analysis of a facility’s current energy consumption versus company goals including collecting carbon emissions data and maintaining a database to facilitate ongoing carbon emission tracking.
• Develop models to assist in evaluating investment scenarios and, through Deloitte Tax LLP, provide tax advice and recommendations, and analyze the potential value of IRA incentives or incentives for fabs under the Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act of 2022. These credits and incentives present unique short-term opportunities for organizations to accelerate their long-term growth.
• Identify incentives, compute eligible spends, facilitate stakeholder collaboration, and provide data visualization platforms to support data-driven decision making; Deloitte uses our IncentivesHub technology to provide these services.
• Be sensitive to contract language and considerations for contractors and subcontractors for PWA compliance and monitoring.
• Establish document retention requirements and collect records of work performed by contractors or subcontractors to demonstrate compliance with PWA requirements.
• Track PWA hours tracking and compliance.
• Assess whether wages paid to each laborer meet or exceed prevailing wage.
• Prepare project records to support IRS examination.

For more information, please contact one of our leaders. We look forward to assisting you with these important issues.

ⁱ Per CBRE, “Global Data Center Trends 2024,” June 24, 2024, “North American data center inventory grew by 24.4% year-over-year in Q12024.”
ⁱⁱ Data Center Knowledge, “Data Center Power: Fueling the Data Center Revolution,” March 22, 2024.
ⁱⁱⁱ US Energy Information Administration, “How Much Electricity Does an American Home Use?” January 8, 2024.
^iv Electric Power Research Institute, Inc, “EPRI Study: Data Centers Could Consume up to 9% of U.S. Electricity Generation by 2030,” Electric Power Research Institute, Inc, May 29, 2024.
^v Vida Rozite, “Data Centres and Data Transmission Networks,” Internation Energy Agency, July 11, 2023.
^vi Hyperscalers: Provides large-scale data centers that deliver massive amounts of computing power and storage capacity to organizations across the globe. Their data centers are designed to accommodate the vast demands of millions to billions of users, ensuring seamless scalability.
^vii Pure Storage, “What Is a Hyperscaler?”.
^viii Per “Prevailing Wage and Apprenticeship Initial Guidance Under §45(b)(6)(B)(ii) and Other Substantially Similar Provisions,” Internal Revenue Service (11/30/2022), projects started on or after January 30, 2023 are eligible.
^ix Prevailing Wages Requirements: Laborers and mechanics employed by taxpayer and all contractors and subcontractors engaged by the taxpayer must be paid prevailing wages of the locality for the specific profession and classification during construction, alteration, or repair of a covered facility.

Apprenticeship Compliance: Options for apprenticeship compliance are: (1) utilize an established state-registered apprenticeship program; (2) establish your own proprietary program; or (3) work with industry associations who have existing registered apprenticeship programs.

This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this publication. The services described herein are illustrative in nature and are intended to demonstrate our experience and capabilities in these areas; however, due to independence restrictions that may apply to audit clients (including affiliates) of Deloitte & Touche LLP, we may be unable to provide certain services based on individual facts and circumstances.