The desert Southwest has always been a place of stark contrasts. But these days, steel and glass are replacing saguaro cactus and craggy canyons as iconic symbols of the region.
There are now 96 major data centers spread across Arizona, including 87 in the Phoenix metro area. AWS, Apple, Google, Microsoft, Meta, Nvidia, and others have a presence in the state. In addition, Intel, NXP, Texas Instruments, and Taiwan Semiconductor operate semiconductor fabrication plants. The latter company is currently constructing a state-of-the-art $40 billion complex.
Although Arizona is enjoying impressive economic growth, the emergence of Phoenix as a high-tech hub has also altered the balance of power — and water. By some estimates, energy use could surge by 60% or more over the next 30 years, while water could wind up in short supply. In August 2024, the US Bureau of Reclamation cut Arizona’s share of Colorado River water by 512,000 acre feet annually due to the driest conditions in the basin in 1,200 years.
“Data centers pull enormous power. We live in an area of water scarcity. Managing these resources is a key consideration over the coming years,” observes Sharon Megdal, Director of the University of Arizona Water Resources Research Center.
Power Plays
Outside of Northern Virginia’s Data Center Alley, no region supports a higher concentration of data centers and high-tech manufacturing facilities than the Phoenix-Mesa area. Ample land, favorable tax, and economic policies, a low risk of natural disasters and a skilled workforce make the area attractive for companies.
That’s the good news. Arizona data centers consumed 6,253,268 MWh of electricity in 2023. That’s about 7.43% of the state’s total electricity consumption. Arizona Public Service (APS), one of the states two large utilities, projects that peak electrical demand will likely grow by 40% from current levels in about seven years. In March 2024, APS raised residential rates by about 8%, or about $10.50 more per month.
Like many states, Arizona obtains its energy from a variety of sources. About 46% of the electricity comes from natural gas, and seven of the 10 largest generation plants are natural gas fired, according to a report from the US Energy Information Administration. In addition, 27% of the energy comes from nuclear, 16% from solar, wind and hydroelectric, and 10% from coal. Arizona has set a target of 100% clean energy by 2070.
Arizona is now at a crossroads, according to the Common Sense Institute, a nonpartisan research organization that focuses on the efficient use of resources. “For years, the state has enjoyed one of the most reliable and low-cost energy grids in the country … Under current capacity investment strategy, by 2050 Arizona electricity prices will rise 47% (in constant 2021 dollars) and average residential bills will reach nearly $2,600/year,” it noted in a 2023 report.
Water Works
Water is also crucial. Manufacturing processes at chip fabrication facilities consume up to 4.8 million gallons of water daily. Data centers typically pull between 500,000 gallons and 5 million gallons per day — mostly from underground aquifers — though some facilities use air-cooling and immersion cooling systems. For example, in 2021, Microsoft announced that it would move to more advanced cooling technologies as part of a broader sustainable data center initiative.
Arizona’s current water policies are based on the state’s landmark 1980 Groundwater Management Act. It established active management areas with specific “safe yield” levels that balance water use and recharge. It also addresses other rights and regulations, as well as mandatory conversation programs designed to uphold water quality and availability. The plan has a 100-year scope.
“The Groundwater Management Act sets the tone for the state,” says Cynthia Campbell, water resources management advisor for the City of Phoenix. Municipal areas use the plan to manage development, with policy reviews that normally take place at 10-to-15-year intervals. “There’s a need to demonstrate to the state that we have the ability to provide water and meet other standards according to the 100-year plan,” she explains.
As a result, the state tracks and regulates every gallon of water pumped from the ground. However, in June 2023, an alarm sounded for the first time. The Arizona Department of Water Resources (ADWR) found that if pumping continued at the current rate, a deficit of 4-million-acre feet would occur in 100 years. As a result, water allocations have hit their limit. “It had the effect of stopping new developments that rely solely on groundwater,” Campbell says.
Resources Matter
Preparing for the next century — or perhaps even the next decade — won’t be an easy task. But Arizona is working with tech companies to optimize energy and water availability. For example, Meta’s 2.5 million square foot data center in Pinal Country (located about 40 miles outside the Phoenix metro area), includes a sophisticated 300-megawatt solar and 1,200-megawatt battery storage system known as the Eleven Mile Solar Center.
Meta’s power generation capabilities could serve as a model for other facilities. According to Ørsted, the firm developing the project, the site will produce enough capacity to power the equivalent of 65,000 homes. Excess power will flow onto the grid, which utility Salt River Project (SRP) operates. Eleven Mile Solar will generate approximately $80 million in tax revenues over a 30-year lifespan.
Officials in Phoenix and Mesa are also pursuing more advanced water resource management policies and programs. One way they are approaching the task is to establish rules for high volume water customers such as data centers. Phoenix, for example, passed an ordinance in March 2024 that requires facilities consuming more than 500,000 gallons per day to establish specific conservation plans and recycle 30% or more of their water.
In nearby Mesa, a Large Customer Ordinance set a water demand ceiling for high volume users. These customers must stay below 330-acre feet of water use in a rolling 12-month period, and, in some cases, they must obtain their own water supply. The policy has been in place since 2019. “It ensures that industries can operate sustainably while safeguarding Mesa’s water supplies,” says Kathy McDonald, water resources planning advisor for the City of Mesa.
Amid cuts in Colorado River water, Mesa is also investing in infrastructure that promotes water storage and wastewater reuse. For example, a 10.5-mile Central Mesa Reuse Pipeline that will commence operation in early 2025 will allow Mesa to exchange treated wastewater with the Gila River Indian Community in exchange for additional Colorado River supplies, McDonald notes.
For now, Phoenix, Mesa and other areas are achieving the necessary balancing act. Yet, as climate change accelerates and growth continues, officials will have to grapple with power and water challenges — including grid reliability — amid the backdrop of sustainability.
“These are complex situations,” Megdal says. “We have to understand the trade-offs between economic growth and resources.”