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A proposed 1.2-gigawatt data center in Delaware City hit a roadblock this week when environmental regulators in Delaware said the project’s design is not permitted under the state’s Coastal Zone Act.

The “Project Washington” data center proposed by Starwood Digital Ventures has been met with scrutiny from community members and lawmakers who are concerned about increased electricity bills and potential environmental impacts.

The Department of Natural Resources and Environmental Control on Tuesday said the project’s intended use of backup generation isn’t permitted under the state’s Coastal Zone Act. The landmark law was passed in 1971 to protect the Delaware Bay and the state’s shoreline from industrial activities.

The agency said smokestacks associated with the diesel generators would be the largest source of nitrogen oxide emissions in the entire state, with the sole exception of the Delaware City refinery. The plan would incorporate a tank farm larger than 5 acres, which DNREC said is also not compatible with the state’s environmental regulations.

DNREC Secretary Greg Patterson called the proposed 6 million-square-foot facility “unprecedented.” The largest number of generators currently utilized by any entity in the coastal zone is eight — the facility, with 11 two-story data centers, would require 516.

Environmentalists are calling the decision a “monumental win” for residents and the environment.

“The Coastal Zone Act is a recognition that our coastal ecologies, and the tourism and benefits of resiliency that they provide to the state, is well worth protecting and preserving,” said Dustyn Thompson, director of the Delaware chapter of the Sierra Club. “We’re glad to see the intention of the law being respected with this decision.”

Representatives for Project Washington said they are undeterred, however. Starwood Digital Ventures said its proposed data center would generate hundreds of jobs and generate millions in tax revenue. In a statement, they said they are confident the project will remain on track despite the agency’s decision.

“Project Washington is proud to have the support of the Delaware unions and trades, the business community, and hundreds of New Castle County residents,” a spokesperson said in an email.

“We are committed to working with DNREC, state and local regulators, and the entire community to make certain that Project Washington will be a state-of-the-art, data center campus that will bring thousands of jobs to Delaware.”

Starwood Digital Ventures could appeal DNREC’s decision, or redesign the project in a way that meets Coastal Zone Act requirements.

Data centers house the computer servers required to run internet services worldwide. While they have been around since the mid-20th century, the acceleration of power-hungry artificial intelligence has boosted demand for the sites. The Trump administration last year announced plans to accelerate AI development with limited regulatory oversight.

AI requires more power at a faster rate than typical internet activities, straining the power grid and leading to increased electricity rates for consumers.

A 2024 Department of Energy report on U.S. data center energy use estimated that data center load growth tripled over the past decade, and would double or triple by 2028.

Project Washington has faced staunch opposition from residents and lawmakers who fear the megascale data center would jack up electricity bills. Some energy experts have estimated the facility could consume as much power as 1 million homes.

PJM Interconnection, which manages the region’s electrical grid, has pointed to the increase in data centers as a reason for strains on the grid. Though a 2023 Department of Energy study said data centers amount to less than 5% of annual electricity use in the U.S., the same report indicates data centers will consume 6.7% to 12% of total U.S. electricity by 2028.

The Delaware City data center proposal includes a plan to use backup generators when outside energy supplies fail. Large data centers typically use this technology to ensure uninterrupted power supply. Environmentalists say instability in regional power markets could increase data centers’ reliance on backup generators. During last month’s winter storm, PJM authorized and prepared to tap backup generation at data centers.

These diesel generators also emit pollutants that can exacerbate respiratory problems and cause other health conditions among people who live nearby.

The Sierra Club’s Thompson said data centers can be more sustainable by using solar to store energy, or by tapping into other fuel cell systems from companies like Bloom Energy, which Delaware has invested millions of dollars in.

New Castle County Councilman Kevin Caneco said in a statement that DNREC’s decision to block the current proposal for Delaware City was a “victory for my constituents and our environment.”

“As so many constituents have been saying for months, we believe such a project is clearly a heavy industrial use that could do substantial harm to our coastline and communities that live near them,” he said.

State Sen. Stephanie Hansen, D-Middletown, said she agrees the current project violates Coastal Zone Act regulations.

However, the former environmental attorney said the decision should not be viewed as a “referendum on the future of data centers.” Hansen called for regulations that balance economic opportunity with energy affordability and reliability.

“Ultimately, this decision from DNREC buys us time to get this right and allows us to have a dispassionate conversation about how the State of Delaware should proceed with all future data center proposals,” she said in a statement.