In recent years, data center development has been driven by land availability, power access, and fiber connectivity. Today, regulations and policy are emerging as a leading factor and often shape project viability even before these fundamentals.
This shift is accelerating with the emergence of “Stargate,” a federal initiative focused on expanding artificial intelligence (AI) infrastructure across the United States. These projects are pushing data center campuses beyond hundreds of megawatts into the gigawatt range and higher, with up to $500 billion in planned investment by 2029. As a result, governments, utilities, and communities are rethinking how they plan for and respond to this scale of growth.
Because of this rapid momentum, data center development regulations are surging as well. In 2025 alone, more than 200 state-level bills were introduced addressing energy use, water consumption, zoning, and other aspects of data center development.
This marks a fundamental shift for developers. Policy is now central to project strategy and must be addressed early to avoid costly permitting delays. At Atwell, we work with clients early in the process to evaluate policy risk alongside data center site selection and infrastructure considerations, helping clients focus on projects with strong viability.
Policy friction
Projects that are technically feasible from an infrastructure standpoint are increasingly being delayed or stopped due to policy challenges. Multi-phase, gigawatt-scale campuses are prompting policymakers to reconsider:
- How data centers connect to the grid
- How infrastructure costs are shared
- How communities absorb large-scale development
Policy is evolving in real time, increasing data center site selection policy risk for developers evaluating new markets.
Policy and project economics
Data centers are increasingly classified as “large load” infrastructure, and demand at the scale of Stargate projects is reinforcing that classification. In response, states and utilities are introducing policies that:
- Require developers to fund grid upgrades and interconnection costs through financial guarantees during the power commitment process
- Establish new rate structures for high-demand users
- Mandate participation in demand response or curtailment programs
At the same time, the scale of these projects is reshaping how energy is sourced. Massive campuses that will require lots of power are difficult to support through traditional grid expansion alone. Because of this, policymakers and utilities are exploring:
- Behind-the-meter generation
- Co-located energy infrastructure
- New regulatory pathways for self-supplied power
Energy strategy is no longer just about securing capacity but about navigating AI data center infrastructure policy alongside utility and regulatory requirements. This shift requires earlier evaluation of interconnection risk, more flexible site design, and closer integration of energy infrastructure into land planning.
Emerging local policy
While federal and state policies set the tone, local governments are playing a larger role in determining project outcomes. Stargate-scale campuses require extensive land, significant resources, and major transmission infrastructure. While these projects require significant resources, it is important to separate facts from uncertainty to support informed decision-making. These factors are drawing increased scrutiny at the local level.
In response, municipalities are:
- Implementing halts on new data center development
- Introducing stricter zoning and conditional use requirements
- Linking approvals to impacts such as water use, noise, and visual scale
Data centers are becoming increasingly scrutinized and require stricter approval requirements. Approval depends on early alignment with local priorities, clear articulation of impacts, and proactive responses to community concerns. Site design is no longer just technical – it is a tool for securing approvals.
Incentive shifts
Tax incentives have long played a role in data center development, but that model is evolving. States are reevaluating incentive programs and assessing net benefits of data center facilities on local communities.
Larger, campus-scale developments are accelerating this shift toward performance-based incentives, infrastructure-related requirements, and a greater emphasis on long-term community benefit. For developers, this means incentives are no longer assumed but negotiated based on how projects contribute to infrastructure, design, and community outcomes.
The federal-state-local tension triangle
One of the most important realities in 2026 is that there is no single authority governing data center development. Federal agencies are beginning to treat AI infrastructure as strategically important. States oversee utility regulation and incentives for data center development, while local governments control land use and approvals.
The scale of emerging demand is putting pressure on all three levels at once, leading to policy overlaps, conflicting requirements, and uncertain timelines. As a result, policy due diligence regarding AI data center infrastructure must begin as early as site evaluation.
What happens next?
Projects are getting larger, impacts are becoming more visible, and policy is evolving in response. Successful projects in this environment are not just well-engineered but well-positioned within the policy landscape from the start.
Developers will need to anticipate policy risk early, translate regulatory requirements into design solutions, and align infrastructure decisions with community and regulatory expectations.
The question is no longer just “Can we build here?” but “Can we build here at this scale, within this policy environment, and how should we design for it?”
Atwell helps clients navigate this by aligning planning and regulatory strategy early, separating facts from conjecture, and positioning projects for compliance and long-term success. Connect with our team to discuss how policy shifts could impact your data center project.
