Sunnova has been acquired. And its former CEO has launched a new startup. Photo via sunnova.com

Solaris Assets has completed its acquisition of the majority of Sunnova Energy International’s residential solar assets. Houston-based Sunnova filed for Chapter 11 bankruptcy this summer after piling up billions of dollars in debt.

Meanwhile, Sunnova founder and former CEO John Berger has launched a Houston-based home energy services startup, Otovo USA, which just received more than $4 million in seed funding.

Solaris now owns Sunnova’s residential solar services platform and its solar generation and storage portfolio, along with leases, loans and power purchase agreements. Sunnova’s operations are being shifted to SunStrong Management, an Austin-based asset manager for the renewable energy sector.

“By bringing together SunStrong’s asset management expertise with Sunnova’s nationally scaled customer base, we are creating a stronger, more capable leader in the solar industry,” Brendon Merkley, CEO of SunStrong, said in a news release. “Our priority is to maintain the highest levels of service for customers as we expand our footprint as a premier solar asset servicer.”

In June, Sunnova sold its new-home business to homebuilder Lennar for $15.2 million and sold certain assets to investment firm Atlas SP Partners for $15 million.

As of December, Sunnova’s debt totaled nearly $10.7 billion, Reuters reported. Sunnova faced numerous challenges in its quest to survive, including higher interest rates, the reduction of solar incentives in California, and a shakeup in federal subsidies for renewable energy.

Sunnova filed for Chapter 11 bankruptcy in June. A month later, a bankruptcy judge approved the court-supervised sale of Sunnova. Solaris’ acquisition of Sunnova closed Sept. 3.

As SunStrong absorbs the bulk of Sunnova’s assets, Berger — who quit in March as Sunnova’s CEO — has formed a new business. He’s now the founder and CEO of Otovo USA, a partner of European residential power company Otovo.

Otovo USA offers solar power systems, solar batteries, standby generators, EV chargers, electric-load managers, and other power generation and management systems. Otovo’s AI-supported offerings are now available in Texas; the company plans to expand nationwide.

Otovo USA raised its seed funding from the EIC Rose Rock Venture Fund, which invests in energy startups.

“Otovo USA is here to help the millions of Americans with home energy services that are fed up with the complexities of warranties, juggling multiple vendors, and long repair times,” Berger said. The startup, he added, “is bringing customers what they really need: reliable power and a single partner accountable for keeping it up and running. It’s your power, backed by ours.”

Eric Williams has been appointed executive vice president and CFO of Sunnova. Photo via sunnova.com/

Houston solar energy company names new C-level leadership

onboarding

Houston’s Sunnova Energy has named a new member to its C suite.

Eric Williams has been appointed executive vice president and CFO of Sunnova, an industry-leading adaptive energy services company. He brings 20 years of experience with 13 years in the energy industry to the company.

Williams replaces Robert Lane. Lane served as Sunnova's executive vice president and CFO from May 2019 to June 2024.

“I was drawn to Sunnova by its commitment to power energy independence and make clean energy more accessible, reliable, and affordable for homeowners and businesses,” Williams says in a news release. “Building on its unique accomplishments and strong history as an industry leader, I am confident in Sunnova’s ability to create value for all stakeholders and realize its vision for a clean energy future.

"I also count it a privilege to succeed Rob Lane, whose leadership and contributions have been invaluable," he continues. "I am grateful for his help ensuring a seamless and effective transition, and I am eager to begin working with his talented team.”

Prior to taking this position, Williams served as CEO and executive vice president of Diversified Energy Company where he helped establish the company’s asset backed securitization structure and led the issuance of approximately $2 billion in securitized debt.

"Eric’s extensive background in the energy sector and impressive track record in finance and accounting will be invaluable to Sunnova, and we are confident he will be a key driver in our growth and success going forward," William J. (John) Berger, CEO at Sunnova adds. "As a seasoned financial leader with deep experience in leveraging the capital markets, we believe Eric is uniquely positioned to continue building Sunnova’s strong financial framework and create more long-term value for our shareholders.”

The new center will house Sunnova technologies, including a microgrid system powered by a grid simulator and a solar array simulator with the ability to replicate various grid and solar array conditions. Photo via sunnova.com

Solar energy company to open new tech center in Houston

coming soon

A Houston energy services company has announced the upcoming opening of a state-of-the-art energy testing and integration technologies hub.

Sunnova Energy International Inc. will open the Sunnova Adaptive Technology Center in 2024. The center, which will come sometime in the first quarter of the year, is part of Sunnova Adaptive Home, Sunnova Adaptive Business, and Sunnova Adaptive Community service offerings. Founded in Houston in 2012, Sunnova aims to “create a better energy service at a better price.”

The ATC will house Sunnova technologies, including a microgrid system powered by a grid simulator and a solar array simulator with the ability to replicate various grid and solar array conditions. An interchangeable inverter and battery test beds, and a fully-functioning model home equipped with full-sized appliances, including a range, oven, refrigerator and HVAC system, will also be part of the new ATC.

This will assist Sunnova engineering teams to perform system level validation to integrate disparate technologies for reliable operation during various grid, solar and home conditions. The ATC will also be the home for service technicians that help with customer issues.

"We've always been committed to ensuring high standards of quality and service excellence for our customers," William J. (John) Berger, CEO at Sunnova, says in a news release. "With the ATC, both our customers and dealers can trust that they are partnering with a company that has an unwavering focus on innovative technologies, integrated energy solutions, quality control, and service excellence."

This announcement comes just two months after the completed expansion of Sunnova’s Global Command Center, which is a similar facility that works with cutting-edge technologies, and customer service. The ATC will also continue to develop its customer-facing experiences like the Sunnova App, and its Sunnova Sentient technology platform, which works with energy management.

“The ATC won’t be a static configuration, but a responsive, flexible arrangement that will effectively pull together top, industry-leading technologies to deliver customized energy solutions to our customers,” Michael Grasso, executive vice president and chief revenue officer at Sunnova, says in the release. “It’s a tremendous effort to qualify hardware and integrate all the technologies we work with – but doing all of this ensures the services reaching our customers are top of the line.”

Sunnova's platform is expanding in Puerto Rico. Photo courtesy of

Houston solar company expands in Puerto Rico, receives DOE funding

island opportunities

A Houston renewable energy company has announced two initiatives that are hoping to provide more grid stability on the island of Puerto Rico.

Sunnova announced that it's expanding its Sunnova Sentient Virtual Power Plant platform. The company has also been selected by the United States Department of Energy’s Grid Deployment Office to be a part of a $440 million investment from the Puerto Rico Energy Resilience Fund.

Sunnova's VPP platform is expanding in Puerto Rico through a collaboration between the Sunnova Power Flex Program and LUMA's Customer Battery Energy Sharing program in Puerto Rico. This plan is "to transform the role of distributed solar and storage customers in enhancing grid stability during peak demand periods, all while offering them financial incentives for their participation," according to Sunnova's release.

Puerto Rican residents can opt into the Sunnova Flex Power Program and will be compensated for the power supplied by their batteries. According to Sunnova, a battery could earn up to $1,000 for this first pilot year.

“We are incredibly excited about the possibilities that our industry-leading VPP platform—delivered to our customers through our Sunnova Flex Power Program—holds for the people of Puerto Rico,” John Berger, CEO of Sunnova, says in the release. “As we continue to spearhead the transition towards a cleaner and more robust future, extending our VPP platform will not only help reshape the energy landscape in Puerto Rico but also empower our valued customers to play an integral role in bolstering grid stability. We eagerly anticipate the transformative impact this program will have on our customers and the Puerto Rican community at large.”

Sunnova has 52,000 solar and storage customers on the island and has installed storage to a capacity of 800 MWh.

“We're excited to collaborate with Sunnova on this important initiative, which signifies a major step in our ongoing efforts to enhance energy reliability for Puerto Rico. We're dedicated to achieving a more stable energy supply, reducing disruptions, and securing a resilient energy future, ultimately benefiting the people of Puerto Rico,” Jessica Laird, VP of Customer Experience at LUMA, says in the statement.

Sunnova's selection by the DOE Grid Deployment Office makes the company one of the eight to receive chunk of a $440 million commitment to install rooftop solar and batteries in PR.

Houston-based Sunnova Energy has secured a loan from the Department of Energy. Photo via sunnova.com

DOE loans Houston company $3B for project that will provide solar energy to underserved communities

ray of sunshine

A partial loan guarantee from the U.S. Department of Energy will support more than $5 billion in loans for Sunnova Energy equipment and technology that’ll supply solar energy to underserved communities.

The $3 billion partial loan guarantee equates to a 90 percent guarantee of up to $3.3 billion in loans. In turn, Sunnova says, that’ll support more than $5 billion in loans to about 75,000 to 115,000 U.S. households. It’s said to be the largest single commitment to solar power ever made by the federal government.

At least 20 percent of the Project Hestia loans will be extended to customers with FICO credit scores of 680 or less, and up to 20 percent of the loans will be earmarked for homeowners in impoverished Puerto Rico.

The Department of Energy (DOE) says Sunnova’s Project Hestia — a virtual power plant — will provide rooftop solar, battery storage, and energy software to residential customers and create more than 3,400 jobs. Sunnova, an energy-as-a-service provider, says each residential power system will feature energy technology accessible by smartphones and other electronic devices.

“The software will give customers insight into their household’s energy usage and greenhouse gas emissions, allowing customers to reduce electricity use — or even contribute electricity to the system in markets that allow such contributions — when the grid is under stress,” says DOE.

The estimated 568-megawatt Project Hestia is poised to help avoid the emission of more than 7.1 metric tons of carbon dioxide over the next 25 years, DOE says. The project will produce enough energy to power roughly 425,000 homes per year.

John Berger, CEO of Sunnova, says the federal loan guarantee “marks the beginning of an exciting chapter in our pursuit of a cleaner and more equitable energy landscape. With our collaboration with the U.S. Department of Energy, we are embarking on a journey that expands clean energy access and delivers economic benefit to Americans in disadvantaged communities.”

As of June 30, Sunnova had 348,600 customers in the U.S., up from 279,400 at the end of 2022. The company projects a 40 percent rate of customer growth in 2024 compared with 2023.

The publicly traded company posted revenue of $328.1 million in the first half of 2023, up from $212.7 million during the same period last year.

Last month, in an interview with EnergyCapital, Berger explained misconceptions about solar power, predicted the rise of the home as a power station, and highlighted the importance of energy independence.

John Berger, CEO of Houston-based Sunnova, explains the importance of energy independence and solar's role in achieving it. Courtesy of Sunnova

Houston solar exec says a major key to slowing climate change is offering energy independence

Q&A

Following extreme temperatures and increasing grid instability this summer, CEO and Chairman of the board of residential solar power service company Sunnova Energy Corp., John Berger, is encouraging individuals to take charge of their energy needs.

Berger founded the Houston-grown company back in 2012, before solar energy was seen as a hip, clean power source. Now, Sunnova (NYSE: NOVA) is a leader in residential solar installations.

In a discussion with EnergyCapital Berger broke down misconceptions about solar power, predicted the rise of the home as a power station, and highlighted the importance of energy independence.

EnergyCapital: In the wake of a record breaking heat wave, how do you anticipate renewables being incorporated into the market as demand response soars?

John Berger: It's a rethinking of the entire system. What goes with that is let's rethink our regulatory structure. In this regard, I'm not talking about renewable energy versus fossil fuel. I'm talking about enabling and empowering the consumer and enabling and empowering the individual, whether that's a homeowner, a business owner, or apartment dweller. We don't do that in this country. We don't do it, outside, maybe Houston, Dallas, and a couple of other small markets. That's inhibiting the transition greatly. The monopolies want higher prices, because the more money they spend, the more money they make. They are not embracing change. They are not embracing technologies. They're not embracing demand response. Because that limits their revenue. So, we should recognize that that's the system. We shouldn't expect a different outcome when we've given us some incentive structure that: spend more money, don't change and don't adopt new technologies.

We need to change the entire energy system because technologies like solar, storage, software, and hardware exist and need to be adopted. We need to have the right regulatory system to allow consumers to adopt them. We need to have the right price, so that consumers can adopt these technologies at a pace that's far quicker than what we're seeing now so that they can ultimately address climate change.

As soon as we unleash the individual and empower the individual — powering energy independence is our tagline — we will solve the ultimate risk to humanity that is climate change a lot faster.

EC: Though solar is rising in popularity, are there any misconceptions about solar power in relation to residential installations that have persisted?

JB: I think the bigger one, whether it’s on a home or in a field, is that somehow since solar is intermittent, it's not reliable. It is intermittent to some degree, but — if you've ever run a utility system — coal is unreliable, gas fired power is unreliable, nuclear is even unreliable. We saw that in the winter storm Uri down in Texas. The gas wellheads froze off because they weren't prepared for the freeze. Were the wind turbines prepared for the freeze? No, they weren't either. The one source that performed better was solar. But you don't see that in a lot of the commentary because it didn't fit the political agenda that some have.

The question is, can you put enough of both on the system or on the home so that you can carry through whether it's a winter storm day or a heatwave in the summer? The misconception that solar will always be intermittent is the constant problem that we face. What are you going to do when the wind doesn't blow and the sun doesn't shine? My response: have you ever heard of a battery? We’ve got to get over that hurdle. Frankly, it's just an excuse and at best an uneducated excuse. We need to get over that and move on, and then figure out how we can best adopt the technologies of solar and storage that are plummeting in price, through empowering the individual.

EC: Sunnova is expanding into virtual power plants, can you discuss what that means and how they might impact grid stability?

JB: Virtual power plants, or grid services, or aggregation services — we call them energy services periods. There's a lot of different names for the same thing. It's basically taking solar storage software demand technologies and incorporating them into a centralized part of what we consider the grid — even though there's not a grid in the United States. The grid, as the common person understands it to be, is actually a haphazard collection of wires and centralized generation that was just put together over the last 130 years. There was not a master plan. You cannot physically move power from Houston to New York, for instance. You haven't ever been able to do that. We're trying to have that fill in of the small solar, the storage, the software, the demand side. We're saying each home, through this Sunnova adaptive platform with our sentient software connecting all these folks together, is likely to have some excess power that they can put onto a utility system or a regional system, so that the neighbor next to him can have that excess power if that neighbor needs it. It's a part of being a part of the Sunnova Club, that we can offer that value to you. That value may be that you get that extra power that you have to pay for where the value is the price in the wholesale market, or it could be that you get paid for that extra value that you happen to produce, through our adaptive platform. So it's a way of connecting homes together so that we optimize the solar and batteries that are on the other side of the meter or on the homes on the businesses. That's a way that you can squeeze more out of that investment that you made or that solar service that you have with us.

EC: As the cost of equipment for renewable energy systems, like EV charging stations and solar roof installations, decreases, is it possible to see a transformation of the home into a power station?

JB: I would go even further and say the home is the gas station now. That's what's already happened. It's fascinating if you really step back and think about it — the electric vehicle is becoming more popular, not necessarily because it addresses climate change, but because it's cool. And because it's enabled by software, AI, and a lot of the other things that make our experience in that car different. I think a lot of people now see and understand that. The other side of that is well, why can't that happen to your house as well? Like there's a lot of automation that should be happening in the house. There's a lot of software and hardware that's going in the house with the entertainment systems and all this other stuff.

You should reimagine how your house is powered and how it uses power. There's a lot of other things that you should be able to do in your house and it's more advanced than just flipping the light switches on and off and turning air conditioners on whether you're there or not.

We waste an enormous amount of energy in the United States. It's estimated that we literally burn over twice the amount of energy that we need and so therefore we're wasting over 50 percent of our energy usage. I mean, just think about the carbon release and the financial destruction that causes. We can do a lot better today with the technology. These technologies are available today and increasingly becoming more inexpensive.

EC: You describe Sunnova as “powering energy independence” — what do you mean by that and why is energy independence important?

JB: I think independence in your life just period is important. You want to have the ability to choose what you want to do in life. It's natural, especially Americans, to say, "I can choose anything I want to do. I can choose where I want to eat tonight. I can choose what car I buy." But for some strange reason, you can't choose your power provider in this country.

That's like if AT&T came to you on cellular and said, "We're going to actually triple your bill today. The regulator already signed off on it. We're gonna give you the flip phone back and take away Apple because Apple didn't agree to our terms. And you're going to like it." That's what we get from the electric industry. It's what we always get. That's unacceptable. We need to open things up to choice and Sunnova provides that choice to the consumers.

We increasingly are taking more technologies on, like load management, storage, more software with our sentient software, and we're coming in and saying, "Look, regardless of manufacturer, we're putting that together. Whatever way you want to fund that equipment, that service that you're procuring, that's fine with us you want to do cash fine, we'll do a loan fine." We offer that lease PPA, but that financing isn't enabled. But then we wrap our service together regardless of how you choose to fund it, which is different from anybody else. We say we're going to be there within 24 hours to fix that problem for most of your issues, so that means we're going to keep that power flowing. That's all it means. It's really that simple. When we do that we can come in and say you're going to be a part of the Sunnova adaptive energy platform. Basically, you're going to be able to get more value, a lower bill, if you're able to sell some of that power you don't need on that particular hot day to your neighbor through Sunnova. We’ll handle everything so you don't have to do anything. Or we can give you some additional power that you may not know you need to charge a car up or something like that and the neighbor will provide it through the Sunnova adaptive platform. So it's about how we rethink the entire energy business.

We're putting it in the hands of the individual to make the decision about what they want, you know, going over that point about reliability, if you work from home, you have a high demand for reliability. You have a higher willingness to pay for higher reliability versus somebody that has to go to work every single day of the week. They may not have that same desire, and they probably don't want to have that level of reliability. You should be able to choose. The utility just decides, the monopoly decides who gets served well and who doesn't. There's no consumer coming in that says I have a higher demand. So what do people do? They'll get dirty generators. One of the biggest industry growth periods in the entire economy is backup generators that burn diesel and burn natural gas. Again, we're taking an industrial age system with an archaic, communistic approach with economics and having bureaucrats make the decision, so we're getting suboptimal outcomes all the way to suboptimal fighting climate change. If we just empower the individual they'd say, “Well, why don't we just put more solar panels on and put more batteries and manage the load better when I bought the electric vehicle?” Those are the kinds of solutions that can be crafted individually for each consumer and that's what we do here at Sunnova.

EC: As a long-time Houstonian, how do you envision Houston’s role in leading the energy transition?

JB: I think Houston has a key role. Houston is the most diverse city in the United States. It is that diversity that's given a lot of strength to Sunnova over the years. Our quality of life is really high. All that means this is a fantastic place to build and create the new global energy industry. We understand oil and gas very well. The bigger oil and gas firms in the world are headquartered here and that's fantastic. They’ll be a part of the solution, I would hope. But if you look at innovation and transformation in industry, there's about a 100 percent hit ratio that the incumbents actually don't lead the change, and in many cases don't make it through the change. And so what we have to do is recognize that new leaders, new companies like Sunnova need to be formed and grown up here. Take advantage of the great quality of life, the low cost structure, the diversity of its people and its communities, and really lead the world and transform the energy industry.

I'm absolutely convinced that the Texan way of doing things, the Houston way of doing things, is a key part of that and demonstrating leadership. We certainly will do our part to help lead Houston forward to be the lead dog if you will, on the transformation of the global energy business.

— — —

This conversation has been edited for brevity and clarity.

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Houston companies advance 200MW green ammonia plant in South Texas

coming soon

Two global companies with a major presence in Houston are teaming up on a green ammonia plant in Port of Victoria, Texas.

Topsoe, a Danish company with operations in Houston and Bayport, Texas, has been tapped to provide ammonia synthesis technology for the project being developed by First Ammonia, a New York-based company with offices in Houston and Denmark.

The flagship 200-megawatt plant will use renewable electricity to produce green hydrogen through electrolysis, which will then be combined with nitrogen from a nearby Air Liquide pipeline to make green ammonia, according to First Ammonia. It is expected to serve both U.S. and global markets.

According to First Ammonia, every 100,000 tons of electric ammonia produced avoids approximately 240,000 tons of CO2 emissions compared to fossil ammonia

The Topsoe technology used on site is designed to be able to increase production from 10 percent to 100 percent within 30 minutes, and decrease production at a similar rate, allowing the plant to respond to fluctuations from solar- or wind-based energy sources.

“Topsoe is the world leader in ammonia synthesis, and First Ammonia is delighted to continue our partnership with them in establishing a green ammonia industry in the US and around the world,” Joel Moser, CEO of First Ammonia, said in a news release.

Topsoe has previously signed on to supply its 100-megawatt solid oxide electrolyser (SOEC) to the First Ammonia project. However, the company announced in March that it did not extend the contract after multiple delays.

The First Ammonia project was originally expected to come online by 2027 and to produce 1.1 million tonnes of green ammonia. The project is now expected to reach financial before the end of 2026, with construction slated to begin in 2027 and commercial operations launching by 2029.

“As green ammonia projects move from ambition to execution, operational flexibility becomes increasingly important,” Yassir Ghiyati, chief commercial officer at Topsoe, added in a news release. “We’re proud to support First Ammonia with technology designed to enable efficient and reliable green ammonia production. We look forward to continuing to work with the First Ammonia team to help bring this important U.S project to life.”

NASA and Houston researcher tackle climate-driven water quality risks

water watch

Climate change means far more to public health than living with hotter days. Transformations in our weather are contributing to challenges in accessing safe drinking water in some communities.

One of the most dire situations is along the US–Mexico border. The National Aeronautics and Space Administration (NASA) is seeking to address that issue with its Water Quality Applications program. An 11-researcher project led by a UTHealth Houston School of Public Health faculty member has been selected to participate.

“Drinking water is one of the most fundamental public health protections, but producing safe drinking water involves a delicate balance,” Yun Hang, assistant professor of environmental and occupational health sciences, said in a news release. Her team’s proposal was one of 93 that were submitted for funding through NASA’s Research Opportunities in Space and Earth Sciences (ROSES)-2025 program.

This is the first time that NASA has worked with a team devoted to water quality applications. The group, which includes researchers from across the nation, will use satellite observations of Earth, as well as hydrologic modeling, to potentially anticipate and act on water quality conditions as they change. Challenges addressed over the course of the three-year program, which kicked off in June, might include problems with water quality due to climate variability and increased pressure on water resources.

Hang’s team will focus on a pair of borderlands: Paso del Norte and the Rio Grande Valley.

“Working closely with El Paso Water ensures that our research addresses real operational needs while helping utilities better prepare for climate-related water quality changes and continue providing safe drinking water to communities across the Texas border region,” Hang added in the release.

She and the team will use data gathered by NASA on both past and future Earth-observing missions, which will allow them to track environmental changes that may affect source water quality. Combined with past water treatment records and hydrologic models, the team will also utilize artificial intelligence to develop predictive tools that aim to stop issues before they become larger hurdles to water safety.

Another one of the project’s goals is to create visualization tools and source water summaries that can be utilized by those without scientific expertise. The tools will be produced in English and Spanish to further broaden their accessibility.

The hope is that the materials made by the team will also go far beyond the border, with protocols that can be adapted or adopted by other areas dealing with water quality issues.

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This article originally appeared on our sister site, InnovationMap.com.

New research reveals what really drives data center location decisions

Guest Column

Recent power outages and the surge in AI-driven computing have made data center siting decisions more consequential than ever, especially as energy and water constraints tighten. Communities invest public dollars on the promise of jobs and growth, while firms weigh long-term commitments to land, power and connectivity.

Against that evolving backdrop, a critical question comes into focus: Where do data centers get built — and what actually drives those decisions?

A new study by Tommy Pan Fang (Rice Business) and Shane Greenstein (Harvard Business School) provides the first large-scale statistical analysis of data center location strategies across the United States. It offers policymakers and firms a clearer starting point for understanding how different types of data centers respond to economic and strategic incentives.

Published in the journal Strategy Science, the study examines two major types of infrastructure: third-party colocation centers that lease server space to multiple firms, and hyperscale cloud centers owned by providers like Amazon, Google and Microsoft.

Key takeaways:

  • Third-party colocation centers are physical facilities in close proximity to firms that use them, while cloud providers operate large data centers from a distance and sell access to virtualized computing resources as on‑demand services over the internet.
  • Hospitals and financial firms often require urban third-party centers for low latency and regulatory compliance, while batch processing and many AI workloads can operate more efficiently from lower-cost cloud hubs.
  • For policymakers trying to attract data centers, access to reliable power, water and high-capacity internet matter more than tax incentives.

What are the two main data center location strategies?

The study draws on pre-pandemic data from 2018 and 2019, a period of relative geographic stability in supply and demand. This window gives researchers a clean baseline before remote work, AI demand and new infrastructure pressures began reshaping internet traffic patterns.

The findings show that data centers follow a bifurcated geography:

  • Third-party centers cluster in dense urban markets, where buyers prioritize proximity to customers despite higher land and operating costs.
  • Cloud providers, by contrast, concentrate massive sites in a small number of lower-density regions, where electricity, land and construction are cheaper and economies of scale are easier to achieve.

Third-party data centers, in other words, follow demand. They locate in urban markets where firms in finance, healthcare and IT value low latency, secure storage, and compliance with regulatory standards.

Using county-level data, the researchers modeled how population density, industry mix and operating costs predict where new centers enter. Every U.S. metro with more than 700,000 residents had at least one third-party provider, while many mid-sized cities had none.

Map of data centers

This pattern challenges common assumptions. Third-party facilities are more distributed across urban America than prevailing narratives suggest.

“For industries where speed is everything, being too far from the physical infrastructure can meaningfully affect performance and risk,” Pan Fang says. “Proximity isn’t optional for sectors that can’t absorb delay.”

In critical operations, even slight pauses can have real consequences. For hospital systems, lag can affect performance and risk exposure. And in high-frequency trading, milliseconds can determine whether value is captured or lost in a transaction.

Why does distance matter for cloud data center costs?

For cloud providers, the picture looks very different. Their decisions follow a logic shaped primarily by cost and scale. Because cloud services can be delivered from afar, firms tend to build enormous sites in low-density regions where power is cheap and land is abundant.

These facilities can draw hundreds of megawatts of electricity and operate with far fewer employees than urban centers. “The cloud can serve almost anywhere,” Pan Fang says, “so location is a question of cost before geography.”

The study finds that cloud infrastructure clusters around network backbones and energy economics, not talent pools. Well-known hubs like Ashburn, Virginia — often called “Data Center Alley” — reflect this logic, having benefited from early network infrastructure that made them natural convergence points for digital traffic.

Local governments often try to lure data centers with tax incentives, betting they will create high-tech jobs. But the study suggests other factors matter more to cloud providers, including construction costs, network connectivity and access to reliable, affordable electricity.

When cloud centers need a local presence, distance can sometimes become a constraint. Providers often address this by working alongside third-party operators. “Third-party centers can complement cloud firms when they need a foothold closer to customers,” Pan Fang says.

That hybrid pattern — massive regional hubs complementing strategic colocation — may define the next phase of data center growth.

Looking ahead, shifts in remote work, climate resilience, energy prices and AI-driven computing may reshape where new facilities go. Some workloads may move closer to users, while others may consolidate into large rural hubs. Emerging data-sovereignty rules could also redirect investment beyond the United States.

“The cloud feels weightless,” Pan Fang says, “but it rests on real choices about land, power and proximity.”

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This article originally appeared on Rice Business Wisdom. Written by Scott Pett. Pan Fang and Greenstein (2025). “Where the Cloud Rests: The Economic Geography of Data Centers,” Strategy Science.