The Price of Power: Data Centers and South Dakota’s Energy Future

Introduction

The data center industry is in the midst of a historic expansion, driven by artificial intelligence, cloud computing, and the rising volume of data that modern life generates. South Dakota sits at an unusual position in this story. The state currently hosts no hyperscale data centers, the massive facilities that power cloud services and AI workloads. Yet South Dakota is not a bystander. South Dakota’s all-sector electricity rates rank 23rd lowest in the nation. Its wind energy production, as a share of total in-state generation, ranks among the highest. And its climate provides a natural advantage in managing cooling costs, the one major operating expense that data center operators cannot automate away.

Those characteristics have drawn serious attention. As of early 2026, two hyperscale facilities totaling nearly 930 megawatts of proposed capacity had been under consideration in the state. The picture shifted following the 2026 legislative session, which rejected sales tax exemptions for data centers and prompted Applied Digital to withdraw its proposed 430-megawatt campus in Deuel County. The Gemini Data Center project in Sioux Falls remains on track.

This article examines what data centers are, how much energy the industry consumes nationally, and what the buildout means for South Dakota, both as a potential host state and as a state already being pulled into the cost structure of the national expansion through the shared regional grid.

What Is a Data Center?

A data center is a facility that houses the computing infrastructure, including servers, storage systems, and networking equipment, that processes, stores, and distributes digital information. Every email sent, every online purchase completed, and every video call placed depends on a data center somewhere in the chain. The facilities vary massively in scale, from a climate-controlled server room in an office building to sprawling campuses consuming as much electricity as a small city (see Figure 1).

The industry organizes data centers into four categories. Edge data centers are small facilities positioned close to end-users to reduce network latency. Enterprise data centers are private facilities operated by a single organization for its own computing needs, typically modest in scale. Colocation facilities operate on a landlord model, where a single owner builds and maintains the physical infrastructure and leases space and power to multiple tenants.

Hyperscale data centers occupy a category of their own, routinely exceeding 100 megawatts and built by or for the major technology companies that power the cloud, including Amazon Web Services, Microsoft Azure, Google Cloud, and Meta. A single hyperscale campus can house tens of thousands of servers, span hundreds of thousands of square feet, and consume more electricity than many small cities. The two facilities proposed in South Dakota illustrate the scale involved: Applied Digital’s 430-megawatt campus in Deuel County (since withdrawn following the 2026 legislative session) and Gemini Data Center’s approximately 500-megawatt project northeast of Sioux Falls are both hyperscale developments. To put that in perspective, a 500-megawatt facility operating at maximum load would consume roughly the same amount of energy as 350,000 South Dakota homes.

At that scale, even marginal improvements in energy efficiency translate into significant cost and infrastructure differences. A useful measure of data center efficiency is Power Usage Effectiveness, or PUE, which measures total facility energy consumed relative to energy used solely for computing. As of late 2024, the industry average PUE is approximately 1.56; the best hyperscale facilities now approach 1.1. Cold climates contribute meaningfully to achieving lower PUE values, as outside air can substitute for mechanical cooling for a significant portion of the year.

The National Demand Surge

According to the Lawrence Berkeley National Laboratory’s (LBNL) 2024 U.S. Data Center Energy Usage Report, U.S. data centers consumed just shy of 60 terawatt-hours of electricity in 2014, representing roughly 1.8 percent of the country’s total generation. By 2023, that figure had reached 176 terawatt-hours, tripling in less than a decade, and accounted for approximately 4.4 percent of national electricity consumption. Growth between 2018 and 2023 alone represented an 18 percent compound annual rate, driven by cloud computing and, more recently, artificial intelligence infrastructure (see Figure 2).

LBNL’s low-scenario estimate for 2028 is 325 terawatt-hours; the high scenario reaches 580 terawatt-hours, a potential tripling of 2023 levels within five years. By 2028, data centers are projected to account for between 6.7 and 12 percent of total U.S. electricity consumption, up from 4.4 percent in 2023. The range reflects uncertainty about the pace of AI adoption and the efficiency gains that new hardware generations may deliver.

To accommodate the increase in demand, utilities have been accelerating investments in generation, transmission, and grid infrastructure and passing those costs to ratepayers. According to a January 2026 report by PowerLines, utilities requested nearly $31 billion in rate increases in 2025, more than double what was requested in the year prior. According to the same report, national residential electricity prices have risen by roughly 40% since 2021 and rose 7 percent in 2025 alone. This increase in residential prices can be clearly seen using data from the U.S. Energy Information Administration (EIA) as shown in Figure 3.

South Dakota’s Energy Profile: Not Just About Cost

As shown in Figure 4, South Dakota’s average industrial electricity rate was approximately 9.60 cents per kilowatt-hour in January 2026, modestly above the national average of 9.29 cents and above several neighboring states including Iowa (7.35 cents), North Dakota (7.95 cents), and Wyoming (8.60 cents). For an industry in which electricity typically represents 30 to 60 percent of total operating costs for a hyperscale facility, that positioning warrants consideration.

While South Dakota’s energy cost might not be the most competitive, its generative mix is. According to EIA’s State Electricity Profiles 2024, wind power provided approximately 58 percent of the state’s in-state electricity generation in 2024. Hydropower contributed another 22 percent. Combined with modest contributions from solar and other sources, renewables accounted for approximately 80 percent of South Dakota’s total in-state net generation (see Figure 5).

That renewable profile matters for data center operators beyond cost. Major technology companies, including Amazon, Microsoft, Google, and Meta, have committed to matching their energy consumption with 100 percent renewable electricity. South Dakota’s wind-dominant grid makes those commitments easier to satisfy, either through direct power purchase agreements with wind facilities or through renewable energy certificates. For context, wind accounts for just 10 percent of U.S. net generation nationally, making South Dakota’s 58 percent share a meaningful structural advantage. Combined with the climate advantage for free cooling and the absence of a state corporate income tax, South Dakota checks major boxes on a hyperscale site selection checklist.

Developer activity reflects that appeal. Applied Digital, a data center and AI infrastructure company, proposed a 430-megawatt campus near Toronto in Deuel County, a roughly $5 billion project. Gemini Data Center SD LLC, backed by a California-based family investment group, received city approval to annex approximately 160 acres northeast of Sioux Falls in October 2025, with plans for a facility of approximately 500 megawatts.

However, the 2026 legislative session altered that trajectory in part. Lawmakers rejected bills that would have provided sales tax exemptions on data center equipment and software purchases. Applied Digital’s vice president said the project “doesn’t make sense at this time” in response and indicated the company would let its land agreement near Toronto lapse, though he noted the company could revisit its plans depending on the outcome of future elections. The Gemini project in Sioux Falls was described as unchanged. Additionally, Governor Larry Rhoden signed two data center-related bills into law: one allowing the Public Utilities Commission to charge data center developers for the cost of regulatory reviews, and another requiring water use compatibility assessments, separate utility rate structures for large data centers, full cost reimbursement from developers, and explicit protection of local ordinances that restrict or regulate data center development.

MISO and the Regional Grid

The legislation session addressed direct cost exposure from in-state facilities, but South Dakota’s electricity costs are also shaped by forces that originate well beyond its borders. South Dakota’s utilities are members of the Midcontinent Independent System Operator (MISO), a nonprofit grid operator managing electricity flow across a 15-state region serving more than 42 million customers . Recent legislation in South Dakota, requiring full cost reimbursement from data center developers and separate utility rate structures for large loads, provides meaningful protection against direct rate impacts on South Dakota consumers from in-state facilities. That protection, however, does not extend to regional grid costs. For regional transmission projects like those in MISO’s Long Range Transmission Planning portfolio, costs are allocated across member-state ratepayers within the relevant subregion rather than absorbed solely by the states where the lines are built.

In December 2024, MISO’s board unanimously approved its Long Range Transmission Plan Tranche 2.1, a portfolio of 24 projects (two of which run through South Dakota) spanning 3,631 miles at an estimated cost of $21.8 billion, citing surging data center demand and renewable energy interconnection as primary drivers. South Dakota ratepayers will contribute a share of those regional infrastructure costs regardless of whether any data center opens within state borders. The in-state legislation addresses local exposure; it does not insulate South Dakotans from the cost of a regional grid being reshaped, in part, by data center load growth elsewhere in the MISO footprint.

South Dakota at the Crossroads

Those regional dynamics set the backdrop for a more immediate question: what kind of state does South Dakota want to be in this buildout? South Dakota is not the first to face this question, and the experiences of others provide useful context. States that moved quickly to attract data center investment, including Virginia and Texas, are now managing the consequences of rapid, large-scale development. The Northern Virginia corridor has become the largest concentration of data center capacity in the world, generating significant transmission costs and upward pressure on residential electricity bills. Texas has experienced grid reliability concerns in part because new load additions outpaced infrastructure planning.

The case for development in South Dakota rests on real advantages. Hyperscale campuses represent billions of dollars in capital investment, generating property tax revenue and construction employment. South Dakota’s renewable energy profile positions the state well for facilities seeking to meet corporate sustainability targets. The case for caution is equally important. Hyperscale data centers are energy-intensive but not labor-intensive, with a facility typically employing only 100 to 200 full-time workers once operational. Additionally, large facilities relying on evaporative cooling can consume between one and five million gallons of water per day, a meaningful consideration where agricultural water use is already carefully managed.

South Dakota’s 2026 legislative session offers an early case study in how states can shape development through policy. Rather than approve tax incentives, lawmakers passed targeted restrictions: cost reimbursement requirements, water use reviews, and protection of local authorities to regulate or limit facilities. Other frameworks worth considering include requiring developers to bear the full cost of grid interconnection, mandating annual energy and economic impact reporting, and creating rate structures that prevent large-load cost shifts onto residential and agricultural customers. The choice is not binary. South Dakota need not choose between becoming Virginia and turning away investment entirely. What it can do is establish the terms before facilities are built rather than after, a lesson the 2026 session has already begun to demonstrate.

Conclusion

South Dakota’s low electricity rates, wind-dominant generation mix, and cold climate have made it an attractive location for hyperscale data center investment. That distinction carries genuine economic opportunity, but it also comes with cost implications that extend beyond whether the state actively chooses to host the industry. The $21.8 billion transmission expansion approved by MISO in December 2024, two projects of which run directly through the state, will be partly funded by South Dakota ratepayers regardless of what in-state development decisions are made.

If South Dakota chooses to host hyperscale development, the key question is not whether to say yes, but what conditions govern that decision. Cost allocation, water rights, infrastructure requirements, and rate protections for existing residential and agricultural customers are policy variables that other states have addressed with varying success. The states that fared best were the ones that established those terms before construction began. The price of power, in every sense of that phrase, is worth watching closely.