'Pitchforks And Fire': Water Fears Top Growing List Of Risks For Data Centers In Desert Southwest

Arizona is one of the country's most important data center hotbeds, but the state and the broader Southwest region face distinct challenges that could stunt their digital infrastructure growth. 

Chief among them is local anxiety about data centers’ water consumption in desert communities. 

Data centers have bloomed in the deserts of the American Southwest over the past six years, turning Phoenix and its suburbs from a relative data center backwater into the sixth-largest U.S. market, according to JLL. That market is set to more than double in size in the months ahead, with 1,913 megawatts under construction adding to the 1,653 MW of existing inventory.

The bulk of that development is hyperscale facilities for the world’s largest tech firms. 

Yet developers looking to build data centers in Arizona and the surrounding region face a unique set of hurdles compared to other fast-growing hubs, industry leaders said at Bisnow’s DICE Southwest event held April 2 at the Marriott Phoenix Chandler. 

Fears around data center water consumption are particularly acute throughout the arid region, and even as developers insist they can build without draining local resources, these concerns have derailed high-profile projects in the area. 

Other region-specific challenges include higher costs and longer timelines for installing new fiber due to the rocky composition of the land. Large swaths of undeveloped land are also under tribal or federal control, raising entitlement and permitting challenges that don't exist elsewhere.

All this comes as Arizona is facing the same power constraints and concerns over power prices as other major data center hubs, as well as a lingering labor shortage.

Still, Stewart Title Vice President Brian Chen said public pushback due to water scarcity remains the thorniest issue facing developers in the region — and one with few immediate solutions.  

“We all know we're in the desert. Water is a scarce resource,” Chen said at DICE Southwest. “You can bring generators to create power, but you can’t make water.”

These acute challenges have been embodied by a prolonged saga surrounding a proposed Tucson-area data center campus known as Project Blue. 

Last year, developer Beale Infrastructure unveiled plans for the $5B, 290-acre Pima County campus, with Amazon as the intended tenant. Tucson is a relatively small data center market, with little hyperscale development compared to Phoenix, but the project is part of the industry’s spread across the region as data center firms search for large blocks of available power. 

It may have been power that attracted Beale Infrastructure to Pima County, but it was the project’s planned water consumption that turned opposition to the project into a cause célèbre for many in the Tucson area. 

As in other desert communities, water conservation is a major focus in Tucson, a high-profile issue that touches many parts of everyday life. The city takes unusual steps to preserve water, such as treating wastewater so it can be fed back into local aquifers.

Project Blue’s initial proposed water consumption — enough to supply four, 18-hole golf courses — landed with a thud among residents. 

Debate over Project Blue emerged as the defining political issue of the past two years in Tucson, appearing on the front page of local newspapers and becoming a major point of contention in elections. Under pressure, city officials ultimately denied the project needed land use changes and access to the area’s water utility. 

Beale is still pursuing the project, albeit with a new design that uses far less water.

But the change led Amazon to drop out in December, and the saga has somewhat poisoned the well for other data center development in the area for the immediate future, panelists said at the DICE event. 

“You’re dealing with the community hate right now,” said Ryan Gruver, a longtime Arizona data center executive who sat on an advisory committee for the city of Tucson pertaining to Project Blue. “I spent some time in Tucson — we are enemy No. 1 to everybody.”

Local opposition to data center development is on the rise across the U.S. and is becoming an impediment to the industry’s growth, with pushback often stemming from concerns around environmental impacts and rising power prices. But while water use is often raised as an issue by data center opponents nationwide, water conservation carries weight throughout the desert Southwest in a way it doesn’t elsewhere, Gruver said.

Project Blue is hardly the first instance of concerns around water derailing a data center project in Arizona. In 2021, the Phoenix suburb of Chandler passed strict water restrictions on commercial users that effectively halted new data center development in what, to that point, had been a growing industry hub. 

Developers need to be ready for this dynamic, panelists said at the event. Getting projects over the finish line requires adopting designs with closed-loop cooling systems that eliminate the vast majority of water usage, even if those designs use more power and are more expensive to build and operate. 

Developers also need to fully understand the water challenges facing the communities where they plan to build and how their project will impact local water resources, planning projects to proactively respond to these issues rather than being forced to pivot and fight a PR war when local governments or environmental groups release their own studies. Firms should also consider proactively financing water restoration projects or similar efforts when they first engage with communities, Gruver said. 

“We can't be coming in and using a bunch of water in the community,” he said. “It's really about engaging those communities early, understanding their needs. We don't want to pull more resources than we absolutely have to, because that's when you get pitchforks and fire.”

Water constraints aren’t the only environmental factor making building data centers in the desert Southwest more difficult. Allan Gazza, IT infrastructure manager for the state of Arizona, said another unique challenge facing developers in the region is the earth itself. 

As data centers spread across the region in search of power, they’re being built outside of existing clusters where robust networks of optical fiber needed to transport data are already in place. Deploying new underground fiber routes to connect rural hyperscale data center center projects has become an accepted added cost for developers and end users.

But these added costs can be exceptionally high in the desert Southwest, Gazza said, thanks to rocky terrain that is more expensive and time-consuming to dig through compared to most other regions. 

“Arizona has a lot of rock, so boring fiber, putting fiber in the ground and putting electrical in the ground can cause you to have a lot of additional expenses,” Gazza said. “You have to get your utilities in there and connection to all the major carriers. Data centers typically have 20 to 30 different carriers coming in to be able to get transport across the US.”

Developers can also face unique permitting and entitlement challenges across the Southwest, said Stewart Title’s Chen.

As data center construction spreads away from major population centers, developers are encountering a far greater patchwork of jurisdictions than in other regions, with a significant share of land controlled by state and federal agencies and tribal governments. 

Developers need vastly different playbooks for navigating approvals in each of these jurisdictions, Chen said, potentially adding complexity, cost and time to projects. 

“The Southwest is a very dynamic region in terms of land. It's a mixture of private, Bureau of Land Management, public and tribal lands, and with that comes a whole different host of issues,” Chen said. “These entities are a lot different in how they operate. From a site selection standpoint, you need to be aware.”