Seeking solutions to data center energy challenges

With the introduction of ChatGPT, the emergence of AI overviews at the top of Google's search results, and the need to store and process massive amounts of essential data, data centers are popping up all over the country. Hyperscale data centers, those operated by large corporations, play an essential role in the expansion of digital infrastructure but are difficult to locate due partially to the large amounts of energy they consume. They require massive amounts of energy to power their operations, from cloud computing to digital storage to artificial intelligence programming. Minnesota is the latest location of interest for new data center development. Minnesota’s infrastructure presents a strategic opportunity for companies like Amazon, Meta, and Google, many of which have set sustainability goals by pledging to reach carbon neutrality. While residents prize our 10,000 lakes, bike paths, and beautiful seasons, these corporations are most interested in our reliable grid and growing clean energy sector.

Our state has a strategic opportunity to incorporate data centers into our clean energy future. With the passing of the Natural Gas Innovation Act (NGIA), the Energy Conservation and Optimization (ECO) Act, and the state’s pledge to reduce emissions for 2040 and 2050, Minnesota has set itself on an ambitious path. Data centers can align with that plan or make it more difficult. While these corporations’ sustainability goals are the right first step, targets do not always translate to realistic action. Without intentional policy and guidelines, Minnesota could see rising emissions and be threatened by grid instability as a result of unchecked and unregulated data center growth and the large new loads they bring to the grid. Without careful planning and partnership, data centers could also strain local resources, increase costs, or disrupt energy reliability. However, with the right regulations and careful planning to integrate them into Minnesota’s energy landscape, these data centers could accelerate grid decarbonization and, by collaborating with clean technology partners, help reach our collective emissions targets. Minnesota can learn from other states when planning how to incorporate data centers into its energy system.

Exploring regulations in other states

From up-and-coming developments in Nevada, South and North Carolina, and Indiana, innovative solutions have emerged from actively partnering with data centers to address the concerns surrounding their energy consumption. These strategies range from regulatory requirements to contract agreements to community benefit agreements that ensure the protection of local residents.  

Clean Transition Tariffs

As data centers expand, ensuring their energy use, procurement, and generation align with clean energy targets will require new regulatory models. Clean Transition Tariffs (CTTs) are emerging as a way to structure utility-corporation partnerships to ensure stable investment in clean power while keeping the grid reliable and energy affordable. Unlike power purchase agreements (PPAs), which rely solely on intermittent renewables like wind and solar, CTTs create a pricing mechanism to pair these renewables with sources such as geothermal. These tariffs allow data centers, and their overhead corporations, to meet sustainability goals while prioritizing state and ratepayer well-being.

• Nevada – Google, in partnership with NV Energy and Fervo Energy in Nevada, launched a CTT in 2024 as a part of its commitment to a sustainable grid. The CTT ensures that Google’s power is sourced from a geothermal plant, to fulfill the 24/7 clean energy that Google promised and reduce reliability concerns. Instead of relying solely on wind and solar, which depend on weather conditions, the CTT structure secures consistent, dispatchable clean energy by covering the cost difference between geothermal and a lower-cost alternative, making geothermal cost-competitive.  
• South and North Carolina – South and North Carolina are also exploring Clean Transition Tariffs. Duke Energy, in partnership with Amazon, Google, Microsoft, and Nucor, has introduced an Energy Supply Agreement, to bring new clean electricity sources onto the grid. Large load customers can opt into the CTT rate structure, paying a fixed rate for clean energy from a dedicated resource and a variable rate when demand exceeds it. This long-term, forward-looking energy structure pushes data centers to contribute to grid reliability rather than strain it. By maintaining relationships between utilities and large energy users, this model increases the share of clean power.  

Pre-weatherization efforts in South Carolina

With the goal of developing energy efficiency projects for low- and moderate-income (LMI) households, Google and Sol Systems, a national renewable energy firm, partnered in 2024 and are working with local environmental organizations and electric cooperatives to bring clean energy into communities. Through a tax equity partnership between Google and Sol Systems, the revenue from solar projects will help fund pre-weatherization to accelerate clean energy development and community investment in the state. Pre-weatherization prepares homes for energy efficiency upgrades by conducting health and safety measures. These measures, such as removing lead paint or replacing old roofs, allow LMI homeowners to qualify for energy efficiency assistance programs, such as the Weatherization Assistance Program (WAP). By improving energy efficiency in the home, energy savings will go up, directly addressing the disproportionate energy burden that many LMI households face.  

Indiana customer protections, contesting large-load data centers

Indiana, facing three planned data center developments from assorted corporations, has taken steps to ensure its ratepayers are not footing the bill for large-load energy users. In a recent settlement, the Indiana Utility Regulatory Commission established that households and small businesses would not be responsible for the infrastructure costs tied to expanding transmission and distribution for these energy-intensive facilities. The agreement also dictates greater oversight of how data centers procure electricity while preventing cost shifts. By establishing these protections, Indiana is taking a more cautious approach to integrating data centers into their grid, and most importantly, prioritizing cost concerns for its everyday customers.  

Opportunities and considerations

There remain some unanswered questions about the impact of data centers on our climate and our communities, from energy use to ratepayer protections. These facilities require massive amounts of electricity and call into question clean energy vs. fossil fuel generation — challenges that some states are beginning to address. Water experts continue to debate water use in data centers, particularly for cooling. Beyond the impacts of climate change and resource limitations, there is the question of how data centers will affect ratepayers. As data center expansion presents infrastructure investments across the country, proper oversight is required to ensure ratepayers do not end up bearing the burden of these finances.  

However, if Minnesota can properly address these questions, data centers can bring significant benefits to communities and the grid. They create jobs, drive investment in local communities, boost rural economies, and if everyday ratepayers are not footing the bill, they can encourage innovation to strengthen our grid infrastructure. Communities like Becker, MN illustrate how data centers could contribute to the local economy. By holding data centers accountable in the clean energy transition and other policy goals, these facilities can be integrated into local communities in a way that supports both economic and environmental goals.

As Minnesota considers data center expansion, CEE is working with stakeholders and other states to inform and guide data center regulation. Through thoughtful problem-solving and judicious regulations, we can guide these facilities to support long-term growth and energy goals.

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*Rachel Campbell is a policy intern at CEE, spring 2025.