A tale of two states

This article originally appeared in the Fall 2025 issue of Thinking Minnesota magazine.

For data center developers, Minnesota piles on the red tape

Data centers, the factories of the computing age and enablers of artificial intelligence (AI), are dominating panic-stricken headlines about growing energy demand and water use. The search term “data centers” reached its peak popularity in the final week of July 2025. What’s the situation unfolding nationally, in Minnesota, and in its neighbor, North Dakota?

No one knows for sure how much energy data centers are going to absorb, but survey says: a lot. The International Energy Agency expects worldwide electricity demand from data centers to more than double by 2030 to “slightly more than the entire electricity consumption of Japan today.” Goldman Sachs thinks global power demand will increase 50 percent by 2027 and up to 165 percent by 2030. In the U.S., the Department of Energy estimates that data center load growth will double or triple by 2028, consuming 6.7 to 12 percent of total U.S. electricity by that year.

The monopoly utilities, rather than recognizing their responsibility to serve all consumers, are trying to pick and choose which large customers they want to turn down. Policymakers are also reacting quickly — but not in a good way.

At the end of the 2025 legislative session, Minnesota lawmakers passed a first-in-the-nation bill demanding aggressive environmental and energy requirements for data centers while cutting back on traditional tax exemptions. The law promises to be burdensome for data center developers. For instance, it imposes high annual taxes, between $2 and $5 million, depending on size. The law also requires companies to meet prevailing wage and green building certification requirements, which adds to construction and operating costs.

Lawmakers might be confused: Most states are offering tax incentives to attract data centers, not imposing taxes to deter them. Coincidentally, perhaps, tech giant Amazon abandoned its plan to build a data center in Becker, Minn., after lawmakers originally began negotiating to eliminate a sales tax exemption on electricity.

Minnesota’s new law also requires the electricity provided to serve data centers comply with Minnesota’s 100 percent carbon-free electricity mandate by 2040. One proposal, by Rep. Patty Acomb, originally aimed to require data centers to arrange or generate carbon-free energy for at least 65 percent of their total energy consumption.

Data centers cannot afford to shut down when the wind isn’t blowing and the sun isn’t shining. They prefer to use zero-carbon electricity, when possible, as evidenced by tech giants’ choices to restart nuclear reactors like Three Mile Island Unit 1 and the Duane Arnold plant in Iowa. However, natural gas and coal are expected to meet over 40 percent of additional global electricity demand through 2030, when small modular nuclear reactors are expected to become commercially viable.

Minnesota’s new law also requires pre-approval if the data center is expected to use 100 million gallons of water per year or more, which bogs down projects in administration and discretionary review. The average family of four uses an average of 400 gallons of water per day, so the law punishes data centers using the equivalent of 685 households, or a mid-size neighborhood. The City of Minneapolis delivers an average of 57 million gallons of drinking water each day.

That isn’t to say that water use doesn’t matter. But it’s a problem already seeing innovative solutions on the free market. Spent water can be treated and repurposed for other uses, and data centers can use less water for cooling when located in cooler climates (such as Minnesota or North Dakota), or employ closed-loop systems that recycle most of their water.

While Minnesota’s 2040 clean energy mandate may align with many tech giants’ Environmental, Social, and Governance (ESG) goals, Minnesota is still one of the least desirable states to build a data center in, my sources say. It’s in part because of the cumbersome and vague permitting process. For instance, any power plant generating 50 megawatts or more that connects to the grid via transmission lines must be approved by the Minnesota Public Utilities Commission (PUC). However, the PUC has wielded that provision to deny backup power for data centers, including Amazon’s Becker site, which proposed to have backup diesel generators operating less than 15 hours per year.

Contrast Minnesota’s red-tape approach with North Dakota’s. North Dakota doesn’t impose any special water-use trigger, no sector-specific fees, and standard permitting for water and air requirements. North Dakota had the fastest relative growth in commercial electricity demand between 2019 and 2023, at 37 percent, thanks “to the establishment of large computing facilities in the state.” North Dakota has favorable — and predictable — sales tax treatment for data centers and is also helped by its refusal to adopt mandates for wind, solar, and battery facilities that reduce reliability.

A $3 billion facility north of Fargo, N.D., is planned, and the company attributes its choice to the state’s “abundant energy, available land, and a pro-business climate,” though it faced a contentious public hearing in September. One way states can enable data centers to innovate and protect ratepayers from potential impacts is by allowing consumer-regulated electricity, which allows data centers to generate their own private power entirely off the grid and avoid being regulated like a utility.

The data center boom is here, and the question is simply whether states will actively deter them or choose to get out of the way.