Phoenix Water Authority Imposes New Restrictions on Data Centre Cooling

The Arizona Department of Water Resources, in coordination with the City of Phoenix Water Services Department, has issued new guidelines requiring all data centre developments exceeding 20 MW to achieve zero net water consumption within three years of commissioning. The directive applies to new facilities in the Phoenix metropolitan area, including the rapidly growing Goodyear and Mesa submarkets.

The restrictions respond to growing public concern about water consumption by data centres in one of America's most water-stressed regions. A single 100 MW data centre using traditional evaporative cooling can consume over 100 million gallons of water annually - equivalent to the needs of roughly 1,000 average Phoenix households. With over 600 MW of data centre capacity currently under construction in the metro area, the cumulative water demand has become politically untenable.

Major operators including Microsoft, Meta, and Digital Realty have already announced plans to retrofit existing facilities and design new campuses around air-cooled or direct liquid cooling systems. QTS, which is developing a massive 400 MW campus in Mesa, has committed to using closed-loop liquid cooling exclusively, eliminating consumptive water use entirely. The shift is expected to increase construction costs by 8-12% but will ensure long-term operational viability in the arid Southwest.

The water issue in Phoenix illustrates a broader challenge facing the data centre industry: as facilities grow larger and move into new geographies, they encounter environmental constraints that established markets like Northern Virginia never faced at scale. In Phoenix, the combination of rapid population growth (the metropolitan area added over 100,000 residents in 2025), declining Colorado River allocations, and groundwater depletion has created a political environment where large water consumers face intense scrutiny.

The industry's response has been impressive from an engineering perspective. Modern air-cooled data centres use zero consumptive water, relying instead on ambient air and mechanical refrigeration. Direct liquid cooling and immersion cooling systems use sealed loops that recirculate coolant without any water loss to evaporation. These technologies are more expensive to install (adding 8-12% to construction costs) but eliminate the water consumption issue entirely while also delivering superior cooling performance.

For developers and investors evaluating Phoenix - which has approximately 1,200 MW of installed capacity and a massive 2,800 MW pipeline - the water regulations create both a barrier and an opportunity. Operators who have already invested in water-free cooling technology gain a competitive advantage, while those relying on legacy evaporative systems face costly retrofits or regulatory risk. The Phoenix model may become standard across water-stressed markets globally, from Dubai and Riyadh to parts of India and Australia.

Despite the water constraints, Phoenix remains one of the most attractive US data centre markets. The region offers some of the nation's most abundant solar resources (55% renewable energy in the grid), competitive power costs ($0.062/kWh), available land in the West Valley, and strong connectivity to California markets. The 2,800 MW pipeline - one of the largest in the country - suggests that developers remain confident in the market's long-term viability, provided they design for the zero-water-consumption future that regulators are now mandating.