Data Center Site Selection in Tennessee

Tennessee has no retail electricity choice and, for most of the state, no investor-owned utility. The Tennessee Valley Authority generates and transmits power and sells it at wholesale to local power companies, municipal utilities such as Memphis Light, Gas and Water and Nashville Electric Service, and cooperatives such as Middle Tennessee Electric. The local power company signs the retail contract, but for a data center TVA is never far away: contracts larger than 5 MW are reviewed by TVA, and requests above 100 MW require TVA board approval.²

That structure has two consequences for site selection. First, the utility service territory still matters, because local power companies differ in distribution capacity, staff experience with large loads and willingness to build substations. Middle Tennessee Electric’s chief executive, for example, has said the co-op must keep encouraging TVA to add generation to serve larger prospects, including data centers.⁸ Second, a sound load request has to work for both organizations: the local utility’s distribution plan and TVA’s generation and transmission plan. See our large-load interconnection guide for how those studies usually run.

On August 20, 2026, the TVA board approved a new wholesale rate class built for data centers.¹ Starting October 1, 2026, new or expanding data center loads above 5 MW fall under a capacity commitment charge attached to TVA’s data center rate schedules, designed to recover the incremental capacity costs those customers create.¹ TVA expects the all-in average billing impact for data center customers to be about 10%, phased in over three consecutive fiscal years.¹ TVA presented the rate as a way to protect household ratepayers, a theme covered in our guide to data centers and electricity ratepayers.¹

The rate arrived alongside fast load growth. A 2026 report found that data center electricity use in the Tennessee Valley grew sevenfold from 2020 to 2025, to 8.3 million MWh, and that the pipeline of demand is about five times TVA’s current data center load.⁹ TVA is building new gas plants, partly in response to that forecast.⁹

For underwriting, model the capacity commitment charge as a real cost from the first phase, and treat the 100 MW board step as a schedule item. Our guide to large-load tariffs and electric service agreements explains how charges like this usually interact with minimum bills and ramp schedules.

xAI’s Colossus supercomputer in south Memphis made Shelby County the most visible test of on-site generation for AI campuses. Residents and activists said Colossus ran gas turbines without the right permits, and aerial imagery from April 2025 showed about 35 turbines on site.⁶ TVA separately approved xAI’s request for more grid power for the facility.¹⁰

On July 2, 2025, the Shelby County Health Department, which runs the local air program, approved xAI’s request for 15 permanent gas turbines with advanced controls and set timelines for removing the temporary units.⁴ The permitted turbines can generate up to about 247 MW.¹¹ The NAACP and other groups appealed the permits, arguing that the temporary turbines should not have been treated as exempt from permitting.¹² The episode is a useful reminder that turbines used as bridge power still need air permits, and that the permit hearing is where community opposition concentrates. Our guides to air permits for data center generators and on-site generation cover the permit types.

xAI has since expanded across the state line in DeSoto County, where Mississippi regulators permitted 41 turbines in March 2026 to power its second Memphis data center; see our Mississippi guide.¹³ Memphis also illustrates a siting pattern: large industrial sites near TVA plants and transmission attract the biggest loads, which then shape local politics for everyone who follows.

Memphis draws its drinking water from the Memphis Sand aquifer, and early talks between the city, MLGW and xAI focused on limiting the campus’s use of that supply.⁵ The result is the Colossus Water Recycling Plant, which will take effluent from the city’s T.E. Maxson wastewater treatment facility and treat it with a ceramic membrane bioreactor to deliver up to 13 million gallons per day of reuse water to the Colossus campus and TVA’s Allen combined cycle plant.⁵ Its designers estimate it will preserve about 5 billion gallons a year of aquifer water.⁵ xAI broke ground on the plant in 2025.¹⁴

Few projects can fund their own treatment plant, but the model is portable: a site near a large wastewater plant can offer reclaimed water for cooling and an easier public story than new groundwater wells. Elsewhere in Tennessee, check municipal water and sewer capacity early and consider closed-loop cooling where supply is tight.

Tennessee has about 60 data centers, and more than a third of them are in the greater Nashville area.¹⁵ In a growing metro, sites close to the city tend to suit smaller enterprise and colocation buildings, while large campuses look to surrounding counties for land. Growth is still raising questions: DC BLOX’s plans in Nashville drew scrutiny over what they could mean for electricity costs and environmental impacts.¹⁶

For larger projects, the counties around Nashville are where the land is, and they are served by a mix of municipal utilities and cooperatives such as Middle Tennessee Electric, whose leadership has said it expects the region’s growth to continue and will need more TVA generation.⁸ Confirm which local power company serves each parcel, then test zoning, sewer and transmission. Our zoning guide covers the common paths.

Tennessee’s main data center incentive runs through the sales tax. To qualify, a data center must, over a three-year period, invest more than $100 million in real or tangible property or software used in its operation in Tennessee, and create at least 15 net new full-time jobs paying at least 150% of the state average occupational wage, with minimum health care coverage.³ Qualified centers can buy computers, software, related devices, installation, repair and service contracts, plus backup power and cooling equipment used primarily for the operation, without sales tax, and pay a reduced 1.5% sales tax rate on electricity.³ The Department of Revenue issues a certificate after approving an application.³

The 1.5% electricity rate matters more than it looks: for a large campus, electricity is the largest operating cost, so the reduced rate compounds every year. It is also under political pressure. In September 2026, Rep. Aftyn Behn of Nashville said she would file legislation for the 2027 session to stop issuing data center exemptions for three years while the Department of Revenue reports on their cost.⁷ Compare the program with other states in our sales tax exemptions by state guide.

1. 01Identify the local power company and ask how it coordinates large loads with TVA.²
2. 02Model the capacity commitment charge from October 2026 and plan for TVA board approval above 100 MW.¹²
3. 03Confirm the project can meet the $100 million and 15-job thresholds before counting on the sales tax benefits.³
4. 04If on-site generation is in the plan, scope the air permit with the state or local air program early.⁴
5. 05Check water and sewer capacity, and look for reuse water near large treatment plants.⁵
6. 06Run the physical screens: floodplain, karst and slope in Middle and East Tennessee, and buildable acreage.

Tennessee competes with Alabama, Kentucky and Georgia for the same projects, and the Southeast guide compares them. If you want an outside read on a specific parcel, you can get a site reviewed.