Sioux Falls data center developers detail next steps

A proposal that could bring the first large-scale data center to South Dakota now awaits a decision from the state Legislature that could determine its viability.

The property is owned by Gemini Data Center SD LLC, which is connected to a California-based family office led by Michael Anvar that has a history of investing in real estate. The group acquired 164 acres from Xcel Energy in late 2023 just south of Xcel’s Split Rock substation and Angus Anson power station.

Despite hours of opposing testimony, a unanimous vote by the Sioux Falls City Council earlier this month approved a rezoning of the property to light industrial and a preliminary subdivision plan. A citizen petition drive is gathering signatures that could put the rezoning to a public vote. That would apply to any future light-industrial use on that land.

“We are still fairly early on,” Anvar said. “This one step, the zoning change, was a critical part for us to be able to have some more real discussions with potential end users. I think that’s something to clarify with folks. We’re more of the developer. We’re not the operator.”

The property could become home to a hyperscale data center, which is a massive facility designed for efficiency and generally used for cloud services, or an AI data center, which is more specialized and optimized for the demand of AI work flows. It also could become a neocloud data center, which is an emerging type that’s also used for AI but designed to be agile and geared toward graphics processing units, or GPUs.

“That would be the eventual goal is to attract one of those as a tenants,” Anvar said.

A bill going through the South Dakota Legislature will have a significant impact on the developers’ ability to compete for that business, he said.

It seeks to exempt qualifying data centers from paying sales tax on IT equipment or computer software for 50 years following their qualifying date.

The bill was referred to the House State Affairs Committee but hasn’t been scheduled for a hearing yet.

“It is something that can impact our project,” Anvar said, noting that his company wouldn’t benefit directly but whatever end user or users of the facility would.

More than 40 states have passed these types of incentives, he added.

“These different companies can look at and do their decision-making on a site selection that puts in many ways South Dakota at a direct disadvantage because the direct neighbors have these incentives,” he said. “I see it more as making a level playing field, so now South Dakota is at the same competitive playing level as these other states. That is a crucial part in order to try and get a tenant to come and utilize this potential project.”

While Gemini has invested in funds that have done data center development, it hasn’t completed one yet as the sole developer.

“We’re actively working on several,” Anvar said. “It kind of evolved organically from work we’re doing in the industrial real estate arena, and that’s where a lot of data center developers … have come out of distribution, warehouse, that kind of work.”

The family office has land at different stages of development, he said. There are properties owned in Phoenix, Philadelphia, the Pittsburgh area and land under contract in Oklahoma and West Virginia.

“Some might just end up being industrial because power is that big question,” Anvar said. “If you can’t get power, it’s not really going to make sense as a data center.”

Gemini and Xcel Energy are still working through power needs and how it will be supplied, he said.

They have determined the site can support the needs of a 500 megawatt data center, although it would require Gemini to build a substation on its land and would require Xcel to make upgrades to its infrastructure — all at Gemini’s cost.

“There’s no cost being passed down to the ratepayers, the general public,” Anvar said. “Ultimately, there would be an electric service agreement that would be signed with Xcel, and there’s a very formal process for that. It would be open to the public for review and go in front of the PUC.”

The process involves Gemini completing an interconnection application and paying for a system impact study, which have been done. Gemini now has funded a facility study, which is in process, and after that, the two proceed to working through an agreement.

In a recent interview with the Federal Reserve Bank of Minneapolis, Xcel president and CEO Bob Frenzel said powering data centers is driving growth for the utility, adding that Xcel is continuing to work with all the industry’s major players.

“We’re in daily conversations with all their development teams,” he said. “We understand their pipelines, their backlogs; they’re knocking on the door in all our regions.”

The data centers are “a very new type of customer — some of the largest loads we’ve ever seen in the United States getting built from an electric perspective, so we want to make sure that our existing customers don’t bear the burden for these very large development activities that we believe need to happen.”

Xcel’s agreements with data center users typically span 15 to 20 years and set a minimum floor for how much power the user must purchase, regardless of whether it’s all used.

The Sioux Falls City Council has limited the Gemini property’s water use to what’s consider “domestic” use, essentially supporting the needs of the people who work there.

While data centers have used large amounts of water for cooling in the past, “that’s not what we’re looking to design, and that’s not efficient anymore,” Anvar said. “Altogether, if we had five buildings of 100 megawatts, we’re talking about the equivalent of a residential project of 50 homes.”

Modern data centers typically use half the water of a commercial car wash, he said, “and you don’t have a lot of pollution coming from these either.”

The city’s requirements include minimum setbacks ranging from 45 to 200 feet on various sides of the building, requirements for buffer yards, exterior mechanical and equipment storage yards. About 17 acres would be zoned as conservation land, and a landscape plan would need to be approved by the Sioux Falls Planning Commission.

“We don’t have construction designs,” Anvar said. “Because we don’t have an end user, we don’t have an exact design. This is all at a concept stage, but we’re trying to, in a sense, check a lot of boxes so we can have more fruitful conversations. That’s where we’re at right now.”

The post Sioux Falls data center developers detail next steps appeared first on SiouxFalls.Business.