Data Center Site Selection in South Dakota

South Dakota’s grid is unusually clean for the northern Plains. Wind supplied about 59% of in-state net generation in 2024, a larger share than in every state except Iowa, and hydropower from the Missouri River dams about 21%.¹ Renewables overall produced about 81% of in-state generation, and natural gas, which passed coal in 2023, supplied about 11%.¹

The rest of the case is a cool climate, available land and a growing Sioux Falls metro. The harder questions are political and financial. South Dakota rejected tax incentives in 2026 and instead passed rules that put the cost of serving large loads on the data center.⁵ That is a different posture from North Dakota, which offers a sales tax exemption, and from Minnesota next door. For the regional market context, see our guides to SPP and MISO.

Who serves the parcel shapes everything else, so confirm the utility service territory first. In Sioux Falls, Xcel Energy owns the Split Rock substation and Angus Anson station next to the Gemini site.⁹ Black Hills Energy serves Rapid City and says it has capacity for a proposed 15 MW data center at the Black Hills Industrial Center.³ NorthWestern Energy serves other parts of the state.

Those two investor-owned utilities are combining. In June 2026 the South Dakota Public Utilities Commission unanimously approved the merger of Black Hills Energy and NorthWestern Energy into a company to be called Bright Horizon Energy, with about 2.1 million customers in eight states.¹¹ The settlements keep the headquarters in Rapid City for at least 10 years and a corporate office in or near Sioux Falls for at least five, and delay rate increases.¹² Large-load terms in both service areas may be revisited as the combined company sets policy.

Much of rural South Dakota is cooperative territory. East River Electric is a wholesale supplier to member distribution cooperatives in eastern South Dakota, and its spokesman has said the cooperative’s highest peak demand ever delivered is 864 MW, a size that took 75 years to reach.¹⁰ East River said it has been working with several companies on loads of 100, 200 or 430 MW.¹⁰ Service territory can itself be contested: Leola Data Center LLC petitioned the PUC to have Montana-Dakota Utilities assigned as its provider inside FEM Electric’s service area, and East River intervened.¹³

Our glossary entry on utility ownership types explains how cooperative, municipal and investor-owned systems differ, and the large-load interconnection process covers the studies a 100 MW-plus request will trigger.

Governor Larry Rhoden signed Senate Bill 135, which supporters called the “Data Center Bill of Rights for Citizens,” in late March 2026.⁴ Its main provisions, as reported:

• It applies to data centers with a peak electrical demand of 10 MW or more.⁴
• Larger data centers must pay for any increase in electricity rates they cause rather than passing it to local customers, and must pay the electrical infrastructure costs attributable to them.⁵⁴
• Data center companies must ensure their water use does not overburden local resources.⁵
• The state may not override local ordinances that limit, prohibit or otherwise regulate data centers.⁵

A second bill signed the same day lets the PUC assess data center companies for the cost of regulatory reviews of their projects.⁵ Bills to impose moratoriums failed, as did a bill to exempt large off-grid backup generators from PUC review.⁵ Read the enrolled text with counsel before relying on any summary, since the cost-allocation language is likely to be worked out in tariffs and contracts. The local-control clause matters for siting: a county or city that adopts restrictions will not be preempted by the state. See data center moratoriums and local restrictions and large-load tariffs and electric service agreements.

South Dakota has debated data center sales tax relief for two sessions without enacting it. In 2025, Senate Bill 177 proposed a refund of sales and use taxes for a qualified business on enterprise IT equipment and software bought for a qualified data center’s initial build-out and refurbishment over 20 years.¹⁴ In 2026, House Bill 1005 would have exempted the same kind of equipment for 50 years after a qualifying date; the House State Affairs Committee voted 9–3 to kill it.⁷ Senate Bill 234, a narrower exemption for enterprise IT equipment and software in a qualified data center, was deferred in committee and is listed as dead.⁸

The effect showed up quickly. Applied Digital had planned a $5 billion, 430 MW campus near Toronto in Deuel County; in April 2026 a company vice president said the project “doesn’t make sense at this time” given the rejected incentives, and that the company would let its land agreement lapse.⁶ Projects in South Dakota should therefore be underwritten without a sales tax break on servers, which is a large cost item over a campus’s life. Our guides to sales tax exemptions by state and tax incentives vs. power costs show how much that gap can matter.

Sioux Falls is the test case for a hyperscale campus inside a city. On January 6, 2026, the city council voted 7–0 to rezone about 164 acres from agricultural to light industrial for Gemini Data Center SD LLC, and approved a preliminary plan after an amendment limiting the site’s water use.² Gemini is a land developer working toward an as-yet unnamed end user; it bought the land from Xcel Energy in late 2023, next to the Split Rock substation, and the site is designed for up to 500 MW.⁹ The developer says it will pay for the electrical infrastructure needed to serve the site.⁹

Approval did not end the debate. A group called Let Sioux Falls Vote began collecting signatures to force a citywide vote on the rezoning.¹⁵ Anyone evaluating land near Sioux Falls should check whether a referral petition can be filed against a rezoning and how long that window lasts. See community engagement for data centers.

In western South Dakota, Sequitor Edge plans a 15 MW data center at the Black Hills Industrial Center in Rapid City, a size Black Hills Energy says it can serve.³ Smaller, edge-scale projects like this tend to move faster than gigawatt proposals because they fit within existing utility capacity.

Water now carries legal weight. SB 135 requires data centers to ensure their water use does not overburden local resources, and Sioux Falls wrote a water-use limit into its Gemini approval.⁵² Drought adds pressure: in mid-2026, fifty-three percent of South Dakota was in drought, with temperatures running six to ten degrees above normal and straining the regional grid.³

The practical response is to design for low water use from the start. South Dakota’s cool winters suit outside-air economization, and closed-loop or air-cooled systems reduce the volume a municipal provider has to commit. See closed-loop and waterless cooling and data center water requirements.

1. 01Identify the serving utility or cooperative, and whether territory could be contested at the PUC.¹³
2. 02Size the load against SB 135’s 10 MW threshold and expect to pay for rate impacts and attributable infrastructure.⁴
3. 03Ask the utility or cooperative how a load of your size compares with its system peak and what new generation it would need.¹⁰
4. 04Confirm water supply with the local provider and plan for a water-use condition in local approvals.⁵
5. 05Underwrite without a sales tax break on servers unless a future session changes the law.⁷
6. 06Check local zoning, any county ordinance and the referral petition window for a rezoning.¹⁵

The site due diligence checklist and our methodology cover the rest. If you hold or are evaluating land in South Dakota, you can get a site reviewed.