Why developers come here
Tennessee’s pitch is power price and speed. The Tennessee Valley Authority is a federal utility outside any ISO, and its industrial rates are the lowest in the Southeast: 6.77 cents per kWh averaged through June 2026 per EIA. xAI proved the speed argument by standing up its Colossus supercomputer in a former Memphis factory in months, partly by running gas turbines on site before grid service caught up. Nashville is a growing fiber and colocation market, Chattanooga has municipal fiber, and the state has no personal income tax.
The state also has a permissive posture toward self-generation. A 2026 law lets large data centers build their own power plants or buy from independent producers with limited state oversight, which is why the largest current proposals, such as Project River in Bradley County, are being pitched as self-powered campuses with 1,000 MW or more of on-site gas and biomass generation.
Incentives
- Sales and use tax exemption for a “qualified data center” under Tenn. Code 67-6-102 and 67-6-206. The Department of Revenue’s guidance sets the threshold at a capital investment of more than $100 million within a three-year investment period and at least 15 net new full-time jobs paying at least 150 percent of the state average occupational wage. Certified facilities buy computer equipment, software, cooling, and backup power infrastructure tax free and pay a reduced 1.5 percent state sales tax on electricity instead of the full rate. The state reported 25 active certificates in September 2026 and said it cannot quantify the revenue cost because no reporting is required. There is no sunset date.
- Proposed pause. Rep. Aftyn Behn (D-Nashville) announced in September 2026 that she will file a bill for the 2027 session to pause new certificates for three years and require annual cost reporting. No repeal or pause has passed.
- HB 1847 / SB 2128, signed by Governor Lee on May 7, 2026 and effective immediately, requires data centers with peak demand of at least 50 MW in their first three years to pay for the grid upgrades needed to serve them, bars utilities and cities from passing those costs to other customers unless the upgrades also benefit them, lets customers file complaints, and expressly allows data centers to self-generate or buy from independent Tennessee power producers. Critics call the self-generation clause a loophole for unreviewed gas turbines.
- Property tax relief comes through PILOT agreements negotiated with county or city industrial development boards, which take title and lease the property back. State law caps PILOTs below full tax at 20 years plus up to 3 years of construction unless the ECD Commissioner and Comptroller approve longer. Terms are public and filed with the Comptroller.
Power
TVA generates and transmits; 153 local power companies such as Memphis Light, Gas and Water and Nashville Electric Service distribute, except for a few large customers TVA serves directly. Interconnection is negotiated with TVA and the local distributor together, and TVA’s board, not a state commission, sets rates.
On August 20, 2026 the TVA board created a separate wholesale rate class for data centers of more than 100 MW, effective October 1, 2026, that raises their power cost roughly 10 percent phased over three years, with the stated aim of keeping residential rates flat. Data centers were 18 percent of TVA’s industrial consumption in the prior year. The same meeting approved xAI’s request to become a directly served TVA customer and an additional 150 MW for its southwest Memphis site.
Generation is the constraint. TVA is adding gas and has said it is considering nuclear, but large new loads are being asked to bring their own supply or accept long ramps, and the 2026 law makes self-generation the path of least resistance. Water has come up in Memphis, where the aquifer supplies drinking water, and in Bradley County, where developers have promised no municipal water and closed-loop cooling.
Where the projects are
Memphis and Shelby County (xAI’s Colossus and the tracked Colossus 2, which spans the state line into Southaven, Mississippi), the Nashville ring (Wilson, Rutherford, Montgomery, and Robertson counties), and the Chattanooga-Cleveland corridor along I-75 (Project River in Bradley County). Northeast Tennessee and the Cumberland Plateau have seen smaller proposals that triggered moratoria.
Local politics
Tennessee has seen the most local moratoria of any Southeast state. WPLN counted nine communities that acted between fall 2025 and June 2026, including McMinnville (18 months), Coffee County, Cedar Hill, Washington County, Grundy County, Johnson City, Jonesborough, and Bristol; Hawkins County banned data centers and crypto mining outright. Wilson County passed a six-month moratorium in July 2026 and Nashville’s Metro Council adopted its first data center regulations the same month after a 50 MW DC BLOX proposal near the zoo. Bradley County restricted data centers to special-impact industrial zones with 3,000-foot buffers and a 60 decibel limit, then saw a packed September 1, 2026 meeting opposing the $11.3 billion Project River anyway.
In Memphis, the NAACP, the Southern Environmental Law Center, and Earthjustice have challenged the Shelby County Health Department permit for 15 gas turbines at xAI’s first site and filed notice over unpermitted turbines at the second, citing air quality in a majority-Black neighborhood already burdened by industry. Governor Lee, by contrast, signed on to a federal ratepayer-protection pledge in July 2026 while declining to preempt local rules, and state economic development officials continue to market megasites.
Supporters in Bradley County point to 900 permanent jobs, revival of the timber industry after a paper mill closure, and no grid draw; opponents cite wildlife, the Hiwassee River, noise, traffic, and distrust of an undisclosed end user.
What a landowner should know
Self-powered campuses want 500 to 1,000 acres with gas pipeline access and a TVA 161 kV or 500 kV line for backup; grid-served projects want 100 to 400 acres near a TVA substation with a cooperative local power company. Option agreements are standard, and because TVA and the distributor both have to agree to serve, diligence periods are long. Ask whether the developer intends to self-generate, because that now determines which permits apply and how neighbors will react.
Check the county’s zoning and whether a moratorium is in place; several were adopted in 2026 with little notice. PILOT terms are public records, so you can see what neighboring counties agreed to. The state contact is the Tennessee Department of Economic and Community Development, and the exemption certificate is issued by the Tennessee Department of Revenue.