A rendering of a proposed data center project in Deuel County, South Dakota. The project is proposed by Applied Digital and would be near the small town of Toronto. (Photo courtesy of Applied Digital)
CLEAR LAKE, S.D. (South Dakota Searchlight) – One company plans to pause its project but another company’s plan is “unchanged” after South Dakota lawmakers rejected incentives for large data centers.
Applied Digital has been courting South Dakota lawmakers and residents of Deuel County in far eastern South Dakota for years. The company planned to build a $5 billion, 430-megawatt data center campus near the small town of Toronto.
The company believes South Dakota is a prime location for data centers because of its wind energy, its abundance of electrical power, and the potential for its cool climate to help data centers save on cooling costs. The Deuel County site is near Otter Tail Power’s transmission lines and a natural gas-fired generation plant in Astoria.
Vice President of Applied Digital Nick Phillips said the project “doesn’t make sense at this time” given lawmakers’ rejection of tax incentives during the recently concluded legislative session. The company’s agreement on the land near Toronto is up for renewal soon, and Phillips said the company will let it lapse.
“We’re constantly looking at other options for power,” Phillips said. “We prefer to do so in jurisdictions that treat us like other jurisdictions.”
Any other nearby state to South Dakota “would make sense,” Philips added, aside from Colorado, which also does not have a sales tax exemption for data centers.
Phillips said Applied Digital could revisit its plans for South Dakota depending on the outcome of elections this year — there’s a race for governor, and every legislative seat is up for election, which could result in a better result for incentive bills next year. But he said energy availability could change within a short timeframe and decide the project’s fate.
“My suspicion is I’ll be around in Pierre next year, but it’s hard to tell at this time,” Phillips said. “We’ll get some more clarity this summer.”
Separate plans for a proposed 500-megawatt-capable data center facility in northeastern Sioux Falls are “unchanged,” according to a representative with Gemini, which is developing the project — it’s just a matter of recruiting a tenant.
The company is pursuing “alternatives within the existing framework,” including potential economic development programs through the Governor’s Office of Economic Development.
“It is not on hold, but like any project of this scale, it ultimately comes down to economics,” the company said in an emailed statement. “We are continuing to evaluate all options, both within South Dakota and more broadly, just as any developer would.”
Lawmakers rejected bills during the legislative session that would have provided exemptions or rebates on sales taxes for data centers, including on their software and equipment purchases.
Gov. Larry Rhoden signed two other data center-related bills into law last week. One will allow the state Public Utilities Commission to assess data center companies the cost of regulatory reviews related to their projects.
The other law requires local water providers to determine whether the water use of large data centers — for cooling of spaces filled with heat-emitting servers — is compatible with the local water supply. It also requires electrical providers to establish separate terms and conditions for large data centers and to require reimbursement for all costs fairly attributed to data centers. Additionally, the law prohibits the state from overriding local ordinances limiting, prohibiting or otherwise regulating data centers.
South Dakota does not have data centers of the size that have proliferated elsewhere in recent years, with developers pointing to a lack of sales tax incentive programs as a primary reason. Many new data centers serve the rapidly growing data-processing needs of artificial intelligence or cryptocurrency.
Opponents of incentives during the legislative session expressed concerns about singling out one industry for help, and about how the water and electrical demands of large data centers could affect other local water and electrical customers.
Comments