For years, power availability has dominated conversations around data center site selection. Developers, hyperscalers, and investors have focused heavily on securing reliable electricity supplies to support the rapid expansion of cloud computing and artificial intelligence infrastructure.
However, another resource is emerging as a strategic constraint that could significantly influence the future of digital infrastructure development: water.
As digital transformation accelerates globally, many leading data center markets are facing new challenges related to resource availability, sustainability, and long-term infrastructure planning.
As AI-driven computing increases cooling requirements and climate-related pressures intensify, water availability is becoming a critical consideration in determining where future data centers can be built and operated. Access to reliable water resources, community acceptance, regulatory compliance, and long-term environmental resilience are increasingly influencing infrastructure investment decisions.
This shift signals a broader change in the way operators evaluate data center locations. Water is no longer simply an operational requirement; it is becoming a long-term strategic risk that can affect project viability, expansion potential, financing, and community relations.
*The Growing Importance of Water in Data Center Development
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The global data center industry has traditionally viewed water as a utility requirement rather than a core site selection criterion. Most project evaluations prioritized factors such as:
• Power availability
• Connectivity and fiber infrastructure
• Land availability
• Tax incentives
• Construction costs
• Labor access
Water requirements were generally considered manageable as long as municipal supplies could support facility operations.
Today, that assumption is changing.
The rapid growth of AI infrastructure is increasing cooling requirements across data centers worldwide. High-density computing environments generate substantially more heat than traditional workloads, placing additional pressure on cooling systems and freshwater resources.
At the same time, many regions are experiencing increasing water stress due to climate change, population growth, industrial expansion, and prolonged drought conditions. As a result, water security is becoming just as important as energy security in many markets.
*Climate Change Is Reshaping Site Selection Decisions
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Climate change is altering long-established assumptions about resource availability.
Historically, developers relied heavily on historical weather patterns and utility data when evaluating new sites. However, future conditions may differ significantly from past trends.
Several climate-related factors are affecting water availability:
• Rising temperatures increase evaporation rates.
• Changes in rainfall patterns affect water replenishment.
• Reduced snowpack impacts seasonal water supplies.
• Drought events are becoming more frequent and severe.
• Groundwater recharge rates are declining in many regions.
Because data centers are long-term assets designed to operate for decades, developers must increasingly evaluate future climate scenarios rather than relying solely on historical data. A location that appears attractive today may face substantial water challenges in the future.
*The Google Chile Case: A Lesson for the Industry
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One of the most frequently cited examples of water-related infrastructure challenges involved Google's proposed data center project in Chile.
The project faced significant public scrutiny due to concerns about water consumption in a region already experiencing severe drought conditions. Community opposition and environmental reviews focused heavily on the facility's potential impact on local water resources.
*The experience highlighted an important industry lesson:
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Even large technology companies cannot assume that water availability alone guarantees project approval.
Public perception, environmental stewardship, and community trust have become equally important. Developers increasingly need to demonstrate responsible water management strategies if they expect projects to move forward smoothly.
Understanding Water Risk Beyond Consumption
Water risk extends far beyond the amount of water a facility consumes.
A comprehensive water-risk assessment should consider:
• Drought vulnerability
• Groundwater depletion
• Regulatory restrictions
• Rising water costs
• Municipal allocation limits
• Environmental permitting requirements
• Community opposition
• Operational disruptions
• Climate uncertainty
• Investor concerns
A facility may consume relatively modest volumes of water but still face significant risks if it operates within a stressed watershed or rapidly growing region.
This broader perspective is causing operators and investors to rethink traditional site selection frameworks.
Community Opposition Is Becoming a Major Factor
Public attitudes toward data centers are evolving.
Historically, data centers were viewed as attractive economic development projects because they created jobs, generated tax revenue, and supported local investment.
Today, communities are paying closer attention to environmental impacts, particularly water use.
In regions experiencing drought conditions or water shortages, residents increasingly question whether scarce freshwater resources should be allocated to industrial facilities. The rapid expansion of AI infrastructure has intensified these discussions.
Whether concerns are based on direct consumption, indirect resource use, or broader environmental impacts, public perception is becoming an important component of project success. Developers that fail to address these concerns may face delays, legal challenges, or reputational risks.
*Arizona: A Case Study in Resource Tension
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Arizona has emerged as one of North America's fastest-growing data center markets due to its favorable business environment, connectivity, and land availability.
However, the state also faces significant long-term water challenges.
As digital infrastructure investment accelerates, policymakers and local communities are increasingly evaluating how future development could affect regional water security.
Arizona demonstrates a growing reality facing developers worldwide:
The most attractive locations for data center investment are not always the most sustainable locations for long-term water availability.
Future projects will require careful evaluation of both energy and water resources before investment decisions are made.
*Why Water Economics Are Changing
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Historically, water costs represented a relatively small portion of data center operating expenses.
As a result, water often received less attention than electricity pricing.
However, the true financial risk is not the cost of water itself—it is the risk of losing access to water.
Potential consequences include:
• Reduced operational efficiency
• Increased cooling expenses
• Delayed expansion projects
• Additional capital investments
• Regulatory restrictions
• Lower asset valuations
Just as the industry shifted from focusing on electricity prices to prioritizing electricity availability, a similar transition is occurring with water resources.
Availability is becoming more important than cost.
*Investors Are Paying Closer Attention
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Institutional investors are increasingly incorporating environmental resilience into infrastructure investment decisions.
Data centers are long-term assets expected to generate returns over several decades. Investors therefore need confidence that critical resources will remain available throughout the life of a facility.
Water availability is becoming an important consideration during:
• Investment due diligence
• Risk assessment
• Infrastructure valuation
• Sustainability reviews
• Climate resilience analysis
Projects with strong long-term water security may gain a competitive advantage when seeking financing and institutional investment.
*Technology Can Reduce Water Risk
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The industry is responding through innovation, particularly in data center cooling technologies designed to improve efficiency and reduce dependence on freshwater resources.
Several technologies are helping reduce freshwater dependence:
• Direct-to-chip liquid cooling
• Immersion cooling
• Closed-loop cooling systems
• Heat recovery technologies
• Reclaimed water systems
• Wastewater recycling infrastructure
These solutions improve efficiency and reduce water intensity. However, technological improvements alone are unlikely to eliminate water-related challenges as global demand for AI infrastructure continues to rise.
Water Will Influence Future Data Center Geography
One of the most significant long-term implications of water risk is its potential influence on where future facilities are built.
Traditionally, developers prioritized:
• Low-cost land
• Reliable power
• Strong connectivity
• Tax incentives
Increasingly, water security is joining this list.
Future site selection models are expected to incorporate the following:
• Climate projections
• Watershed resilience assessments
• Groundwater sustainability analysis
• Water pricing forecasts
• Community impact studies
• Regulatory risk evaluations
• Water replenishment opportunities
Regions capable of providing both energy security and water security may attract a larger share of future infrastructure investment.
**Conclusion:
**The data center industry spent the last decade learning that electricity availability cannot be taken for granted. The next decade may deliver a similar lesson regarding water.
As AI workloads continue expanding and cooling requirements increase, water is becoming a strategic infrastructure resource rather than a simple operational utility. The increasing deployment of hyperscale data centers is amplifying demand for both electricity and water, making resource management a critical consideration during site selection.
Developers, investors, and operators that integrate water resilience into site selection decisions today will be better positioned to manage future risks, secure community support, and maintain long-term operational stability.
In the emerging era of AI-driven infrastructure, the most successful data center projects may be those that secure not only power, but also sustainable access to water.
