OBBBA’s Ripple Effect: Strategic Implications for the Data Center Sector

The enactment of the One Big Beautiful Bill Act (“OBBBA”) on July 4, 2025 introduced major legal and regulatory changes across various sectors. Although the data center sector is not directly targeted by OBBBA’s provisions, the law introduced a number of amendments to the tax code as it relates decarbonized energy, creating significant considerations for data center developers.

In short – it’s a mixed bag. The OBBBA prioritizes and strengthens the role of traditional energy sources like oil, gas, and nuclear.  For example, the law delays the methane emissions fee until 2035 and positions nuclear energy as a cornerstone of U.S. Energy strategy.  However, it does not treat renewable energy sources as kindly.  Rather, the law phases out Section 48E investment tax credit (“ITC”) and Section 45Y production tax credit (“PTC”) for wind and solar facilities, which will have a significant impact on the viability of a number of early-stage renewable energy projects currently in development. However, the 45Y and 48E credits remain in place for other clean electricity sources, such as nuclear, geothermal and hydropower. Further, the 48E ITC remains in effect for energy storage projects, although new restrictions relating to foreign entities of concern (“FEOC”) have been introduced with implications on developers’ supply chains. 

This client alert examines some of the changes in law under the OBBBA and applies the analysis to the data center sector.

Priorities in Energy Procurement 

Data Centers need electricity.  A lot of it. Electricity is the lifeblood of a data center. How to obtain a steady and reliable power supply is a core problem to solve.   Developers have a number of priorities when procuring electricity for their projects, including: 1) a firm and reliable supply, 2) scale (often measured in the hundreds of MWs), 3) speed to power, 4) low-carbon or zero-carbon power sources, and 5) competitive cost. 

One of the major bottlenecks in new generation assets being added to the grid is currently the interconnection process, which can take several years to complete. In order to expedite deployment, many data center developers are proceeding on the basis of a “behind the meter” configuration, where power is supplied directly to a data center from a nearby power plant without using the grid’s transmission or distribution infrastructure. This outside the box industry driven approach to accelerating connection to power has left both state and federal regulators attempting to build the plane while flying it to create just and reasonable regulations and standards for data center interconnection in real time. 

Today, solar and wind can compete with any other generating resources in terms of speed of deployment and low-carbon attributes.  However, both technologies are intermittent in nature and incapable of providing firm dispatchable power without sufficient storage assets also being deployed. The dependence on a storage solution tends to increase overall project costs and therefore makes it more challenging for solar or wind plus storage to compete with other generating technologies, such as natural gas. Further, the land requirements needed to provide power to a single data center are significant  and not easily overcome. Even if the land needed to develop a co-located solar or wind farm can be identified, the land acquisition costs will also impact the overall project economics, thus reducing the competitiveness of solar or wind in meeting the power needs of data centers.

At the same time, as highlighted in Rethinking Load Growth: Assessing the Potential for Integration of Large Flexible Loads in US Power Systems, data centers can help alleviate some of the strains placed on these supply chains and interconnection queues by considering their own energy flexibility and overall grid impact by incorporating energy storage solutions. 

Although many of the key OEMs are experiencing a backlog on orders for new turbines, natural gas-fired power plants appear to currently be in the pole position in the race to supply electricity to new data centers. In the mid- to long-term, it is possible that new low-carbon technologies – such as advanced nuclear, small modular reactors (“SMRs”), fusion and advanced geothermal – will be able to catch-up.

Solar and/or wind combined with energy storage may continue to play a role for some data center projects where the economics, geography, and regulatory environment are appropriate. Although the removal of the PTC and ITC for solar and wind projects will be phased out for projects that commence construction after July 4, 2026 or are put in service by December 31, 2027, importantly, the ITC for energy storage projects remains in place after the enactment of the OBBBA. This may encourage solar and wind developers to couple their projects with energy storage in order to provide dispatchable power to data center customers while taking advantage of the 48E ITC. The IRS recently issued guidance that will complicate developer’s ability to access tax incentives when it revised historic safe harbor rules, eliminating the 5% safe harbor, except for “low output” system f 1.5 MW and under. This change does not apply to energy storage technology.  

However, the future of wind and solar is increasingly murky, with the Trump Administration pushing back on support for these industries. In late August, the Administration halted work on the nearly completed Revolution wind farm off the Rhode Island coast. Such moves could further increase energy costs in the years to come. 

New Foreign Entity of Concern (“FEOC”) Restrictions

The OBBBA introduced new limits on energy storage projects which we discussed recently in “Understanding the Impact of the OBBA on Renewable Energy."  The Department of the Treasury will also be releasing safe harbor guidance during the course of 2026 on how to determine which costs must be allocated to prohibited foreign entities.

Given China’s current place in the supply chain for many energy storage technologies, the new FEOC restrictions imposed by the OBBBA will make it more challenging to would-be beneficiaries of the ITC to qualify their energy storage projects once the new provisions come into effect. Fortunately, the energy storage sector is maturing quickly, with technologies other than lithium-ion batteries (in which China plays a dominant role) being more widely deployed.

Looking Ahead

The changes introduced by the OBBBA will not immediately have a direct impact on the data center sector. However, the amendments will divert private capital from solar and wind projects to other generation technologies, including low-carbon ones such as nuclear and geothermal. This could spur investments in those technologies, thus potentially driving down their cost curves over the coming decades. Less expensive baseload energy from a diversified portfolio of generating resources has the potential to improve the long-term prospects for the US data center sector. 

As OBBBA-related regulations continue to take shape, our team is monitoring developments that could affect energy procurement and infrastructure planning for data centers. We will keep you informed through timely updates. Reach out to the Womble Bond Dickinson team with any questions or for guidance on how these changes may impact your business.