Powering the Digital Age: What Data Center Growth Means for the Tax Credit Industry

As global demand for data-intensive services continues to rise, data centers are rapidly multiplying to meet the needs of cloud computing, AI, streaming, and e-commerce. According to the U.S. Department of Energy, data centers already consume about 2% of the nation’s electricity—a figure expected to grow significantly over the next decade. This surge presents a critical challenge and a compelling opportunity for the tax credit industry. 

Energy Demand Meets Sustainability Mandates 

While data centers are foundational to the modern economy, they are also energy-intensive and carbon-heavy. Stakeholders—from hyperscale operators to colocation providers—are under increasing pressure to reduce emissions and invest in clean energy infrastructure. As a result, tax credit programs tied to renewable energy and energy efficiency have become crucial to data center development strategies. 

The Inflation Reduction Act (IRA) expanded and extended several energy-related tax credits that directly benefit the data center sector, including the Investment Tax Credit (ITC), the Production Tax Credit (PTC), and the Section 179D deduction for energy-efficient commercial buildings. By leveraging these credits, data center operators can offset the cost of deploying solar, wind and battery storage technologies while reducing operational expenses. 

Tax Equity: A Critical Financing Tool 

Tax equity financing plays a pivotal role in enabling data centers to access the capital needed to pursue sustainability upgrades. Through tax equity partnerships, developers can monetize credits that would otherwise go unused—freeing up cash flow and accelerating the deployment of low-carbon solutions. 

This is particularly relevant as more operators pursue on-site renewables, green microgrids and next-generation energy management systems. For example, a hyperscale facility that installs solar plus storage could benefit from the ITC, while also qualifying for the 45X Advanced Manufacturing Credit if domestic content thresholds are met. 

What’s Next for the Industry 

As data center operators face rising energy costs, regulatory scrutiny and sustainability mandates, tax credit incentives offer a powerful tool for navigating the road ahead. For institutional investors and project sponsors, this intersection of digital infrastructure and sustainability presents a growing pipeline of viable, credit-rich opportunities. 

At Foss & Company, we’re actively engaging with partners to structure tax equity solutions that meet the moment. The alignment between energy transition goals and tax credit incentives is only getting stronger—and data centers are at the center of it all. 

 

Ready to Explore Tax Equity Opportunities? 

Contact Foss & Company today to learn how we can help structure and finance your next clean energy or historic redevelopment initiative.