What’s the best U.S. state for a data center? Virginia and Texas are widely considered the top choices, but a new report suggests that a rarely selected state offers a far better option. The report, released by infrastructure provider Applied Digital, details advantages like free cooling days and grid stability that make North Dakota a top choice.
The issue of where to build a data center has come to the forefront as the growth of AI is driving energy demands high enough to strain the capacity of electrical grids. U.S.-based data center energy use is forecast to double—or more—by 2028, according to an estimate by the Lawrence Berkeley National Laboratory. From a 2023 annual energy use of about 4.4%, the level could reach between 6.7% and 12% of total U.S. electricity consumption over the next three years.
The Applied Digital report, titled AI Factory: A Case Study for Total Cost of Ownership, addresses the key issue of energy use in data facilities. The report may be viewed by skeptics as partially a self-serving marketing document, since Applied Digital is itself a provider of digital infrastructure and HPC hosting, and the company has facilities in North Dakota. Yet even with that caveat, the document raises interesting points in the growing debate about energy use and data centers.
Clearly, North Dakota is a dark horse in the data center race, with a mere 20 data centers. Traditionally, Virginia has been the leader, with nearly 600 data centers. Northern Virginia is known as “Data Center Alley,” and plays a key role in global internet traffic. Texas is another top location with about 350 data centers.
But rising energy costs turn North Dakota into a viable choice. It has a cooler climate, requiring less electricity to cool power facilities, and has far greater access to stranded power, which is power that is generated but not consumed. North Dakota exports 33% of its electricity out of state, and 34% of the state’s power is derived by wind power.
In contrast, Virginia is now constrained for power, using more than it generates. It relies on power from the regional grid to meet its demand, largely due to the load of its data centers. In 2023, the U.S Energy Information Administration listed Virginia as the top net electricity recipient of any state.
These contrasting energy scenarios add up to big differences in cost. Applied Digital estimates that North Dakota’s lower costs than Virginia or Texas add up to savings of $40 – $50 million over a multi-year period for a 100MW data facility.
Grid reliability is another key factor: North Dakota has a far more stable grid than Texas, which accounted for 13% of U.S. outages in 2024. Virginia also has a significant number of power outages, with 94% of its outages from extreme weather—among the U.S.’s highest.
North Dakota does have one downside, according to Applied Digital: it has a limited workforce compared with Texas and Virginia, plus it’s new to the data center sector. However, the report notes, “history has repeatedly proven that jobs create towns not towns create jobs.” The report points out that an oil boom in North Dakota transformed sleepy Watford City from 1,744 residents to nearly 7,500 in one year.
