Real estate developers have long been required to address a new project’s impact on community resources. Data center developers face the same challenge, but community concerns about data centers have escalated into national issues that other asset classes rarely encounter. If the industry wants to continue developing at scale and speed, it must confront these issues head on: acknowledge sustainability concerns, offer real solutions, and clearly distinguish between actual and perceived impacts. Here’s where stakeholders stand on two of the most pressing concerns and why the solutions remain incomplete.
Concerns About Water Scarcity
Water concerns are real and growing. Potential cuts to Colorado River Basin allocations for California, Arizona, and Nevada, combined with persistent droughts in Texas and elsewhere, are intensifying scrutiny of data center water use. Industry stakeholders are already responding through technology and design: closed-loop water-based cooling systems, interior configurations that reduce heat generation, and other innovations that can dramatically cut water consumption. The industry should prioritize these technologies so it is seen leading the solution rather than being forced by regulators to adopt them.
Grid Reliability and Power Supply
Building new high-voltage transmission lines in the United States takes longer than virtually anywhere else in the world. Meanwhile, existing grid infrastructure is already strained. PJM Interconnection, the regional transmission organization serving all or parts of 13 states from New Jersey to Illinois, had to take emergency measures during peak demand events in December 2024 (a cold snap) and July 2026 (a heat wave) to avoid potentially catastrophic system failures. The volume and scale of hyperscale interconnection applications have only heightened public concern about data centers’ impact on the grid during peak periods. Developers are responding in several ways: siting projects where grid demand is lower, agreeing to curtail grid consumption during peak periods while relying on gas-fired backup generators and battery storage, and purchasing power directly from dedicated generation facilities, whether in front of or behind the meter, to avoid grid dependence altogether. Critics view some of these solutions as imperfect, citing increased emissions from gas-fired generation (currently the fastest technology to deploy) and lost opportunities to invest in grid infrastructure that would benefit all electricity consumers.
The Path Forward
New and emerging technologies can address water challenges, and the industry needs to do a more consistent job of adopting and communicating them. Power supply is thornier; complicated by state and federal laws and policies that continue to create barriers to building a more robust and reliable grid. The data center industry should have natural allies in this effort: renewable energy developers, vertically integrated utilities, independent power producers, manufacturers, and, with the right approach, consumer groups that share a common goal of reliable, affordable energy for all. The hard work will be building a coalition of industry stakeholders that can engage these partners to drive meaningful changes in state and federal policy and promote grid investments that benefit everyone.