The Nickel Report

Virginia has emerged as the dominant data center market in the world, driven by exponential growth in data storage and processing demand associated with artificial intelligence and cloud computing. With that growth has come increased regulatory scrutiny, particularly with respect to air permitting for backup power systems.

Over the past year, the Virginia Department of Environmental Quality (DEQ) has issued several guidance and clarification memoranda addressing how existing air regulations apply to data center development and operation: 

• Clarification #2025-01
• Clarification #2025-02
• Clarification #2025-03
• Guidance Memo APG-578

Although these documents do not have the force of regulation, they provide important insight into DEQ’s permitting and enforcement approach.  

Regulation of Emergency Generators

As DEQ explains in Clarification #2025-01, many data centers rely on reciprocating internal combustion engine driven generators (gen-sets) for backup use in the event of a power outage. These gen-sets may be classified as “emergency” units under federal and Virginia air regulations, a classification that carries important regulatory and permitting consequences. Critically, however, the definition of “emergency” differs in meaningful ways between EPA’s federal framework and Virginia’s air regulations, and those differences are central to understanding DEQ’s recent guidance affecting data center development and operation.   

At the federal level, EPA’s broader definition of emergency under the New Source Performance Standards focuses primarily on the unavailability of the primary power source.[1] In Virginia, an emergency is more narrowly defined as “a condition that arises from sudden and reasonably unforeseeable events where the primary energy or power source is disrupted or disconnected due to conditions beyond the control of an owner of a source” and, relevant here, includes a “failure of the electric grid.”[2] Previously, DEQ took the position that an energy provider’s scheduled power outage did not constitute an “emergency” because sources would have advance notice; therefore, the outage would not be “sudden and reasonably unforeseeable.” This interpretation created practical challenges for data centers that are interconnected with utilities or power plants and rely on generators during known or coordinated outages, even where those generators are serving a traditional backup function.

When a Planned Outage Can be an “Emergency”

Against this backdrop, DEQ issued Guidance Memo APG-578 on September 30, 2025, to revise the meaning of “sudden and reasonably unforeseeable” within the context of scheduled power outages “when they are beyond the control of a [source].” As a result, DEQ will “allow the use of emergency generators for a planned outage if a source is notified about the event within fourteen (14) calendar days or less” and satisfies several additional requirements.

It is important to note that not every planned power outage will constitute an emergency.  According to Guidance Memo APG-578, DEQ will assess each situation based on the totality of the circumstances. Therefore, data centers should consider taking the following proactive steps so that, in the case of a planned power outage, their actions satisfy DEQ’s requirements for the agency to find that the circumstances constitute an “emergency.” 

• Implement monitoring and reporting processes for emergency generator use. Sources must be able to articulate, with supporting documentation, that emergency generator use is necessary in a particular circumstance. Additionally, permitted sources are obligated to communicate estimated and actual operation and fuel combustion data. This may be complicated depending on the size of the source and the number of emergency generators being operated. Sources should develop monitoring and reporting processes that streamline this process to allow for uncomplicated communication.
• Develop an action plan for scheduled power outages. Sources are expected to communicate a plan of action in the case of a planned power outage. According to DEQ guidance, sources should prepare to communicate at least 1) estimated time that emergency generators will run, 2) which generators the permittee plans to use, and 3) the proposed generator’s rates of electrical capacity. Sources should proactively develop plans tailored to different situations. This will prepare sources for potential outages and facilitate prompt communication with DEQ.

Data Center Air Permit Guidelines

On January 17, 2025, DEQ issued Clarification #2025-02 to provide clarification regarding the implementation of certain air permit regulations for data center stationary sources. Notably, this memo provided clarification regarding multiple data center facilities (DCF) and data center development, among other issues.    

     Multiple Data Center Facilities

DEQ has faced various complexities related to siting data centers, especially when a new data center facility is developed in close proximity to one or more existing or proposed data center facilities. In this case, DEQ must determine whether the proposed pattern of development constitutes separate stationary sources (requiring individual permits for each data center) or a single stationary source (requiring only a single permit). Under both Virginia and EPA regulations, data centers must be aggregated into a single stationary source when emitting activities are under common control, within the same industrial category, and located on properties either contiguous or adjacent to one another. Neither Virginia nor EPA has established a specific distance to make data center properties “adjacent” for the purpose of single-source determinations. Previous DEQ guidance suggests that adjacency determinations should be conducted on a case-by-case basis based on “the common sense notion of a plant” and consideration of the physical distance between property boundaries.

Clarification #2025-02 affirmed these general principles and provided more concrete benchmarks for determining whether properties are adjacent. DEQ provided the following benchmarks (based on property boundaries):

• Multiple DCFs separated by 0.25 miles or greater are generally not adjacent.
• Multiple DCFs separated by less than 0.25 miles but greater than 0.125 miles require consideration based on the “common sense notion of a plant” on a case-by-case basis.
• Multiple DCFs separated by less than 0.125 miles are generally adjacent.

Regarding past decisions, the memo states that DEQ does not intend to revisit past adjacency determinations based solely on the new guidance, but it may reevaluate them if circumstances subsequently change, to include property boundary adjustments and ownership transfers.

     Data Center Development

Typically, data center developers build out DCFs in incremental phases where construction of a new source is accomplished in contemporaneous increments. These increments may be aggregated for determining certain regulatory requirements, including permitting applicability. For Virgina’s minor new source review program, a period of five years is utilized when determining if incremental changes are contemporaneous.[3] 

Construction Activities Before a Permit

New Minor Source Review Air Permit Regulations prohibit the actual construction or operation of any new stationary source or relevant project without first obtaining an air permit.[4] The regulations define “begin actual construction” as the “initiation of permanent physical on-site construction of an emissions unit.” In Clarification #2025-03, DEQ clarifies that the following activities do not fall within the definition of “begin actual construction” and therefore are permitted before obtaining an air permit:

• Certain site preparation work such as grading.
• Storing and staging equipment on proposed construction sites in the absence construction activities that are integral to the emission unit (g., installing foundations, constructing permanent structures, running electrical wiring, laying underground pipework, etc.).
• Construction on aspects of a project that will not support or house emissions units, such as buildings that will house servers or other computer equipment, provided those buildings do not contain backup or emergency generators requiring an air permit.

DEQ has stated that compliance determinations in this context are typically based on observable on-site conditions. As a result, while certain preparatory and non-emissions-unit construction activities may proceed prior to permit issuance, developers must take care to avoid construction activity that could be viewed as permanent and integral to an emissions unit before the required air permit is obtained.

Practical Takeaways for Data Center Owners and Developers

It is critical for data centers to maintain reliable and uninterrupted power, especially in light of growing use and dependence on AI, and the strict requirements under many data center leases and service agreements. Recent DEQ guidance provides insight on how it intends to apply existing air regulations related to the development and operation of data centers. Going forward, data centers should:

• Engage DEQ regional air staff early in project planning to confirm permitting pathways and reduce the risk of delays.
• Build an outage response process that tracks Guidance Memo APG-578’s notice, documentation, and reporting steps.
• Consider DEQ’s adjacency distance ranges when siting multiple DCFs to determine whether it is treated as a single stationary source.
• Model emissions over the contemplated development window, recognizing that phased construction within a roughly five-year window may be aggregated for minor new source review purposes.
• Consider how the foregoing could affect existing real estate documents such as leases, service agreements, and construction contracts, particularly as it relates to the definition of an “emergency” under force majeure clauses, the remedies available to tenants, and whether a property transfer could trigger an adjacency reevaluation.
• Sequence construction properly to avoid inadvertently beginning actual construction before a permit is issued.

[1] 40 CFR § 60.4219.

[2] 9VAC5-540-20; 9VAC5-80-1110. 

[3] 9VAC5-80-110 E.

[4] 9VAC5-80-1120.