Water Supply Challenges for the Growing Data Sector

by Toni Rask

Data centers can serve a variety of functions, ranging from supporting generative artificial intelligence, economic digitalization, and growing computing needs for data capacity. As the demand for data centers rises, so does the electricity needed to support the growth of the facilities. Electricity is an obvious need, but what about the additional water supplies needed to support these large centers? The facilities are very energy intensive, housing fans and cooling centers, and can consume over 100 MW of power per year.¹ In the current legislative session, Texas lawmakers have taken aim at addressing data centers’ impacts on energy by providing real property and personal property tax exemptions to data centers if data centers build and operate their own electric generation.² There is no such comparable bill to address water consumption.

Water can be used indirectly by data centers to generate electricity from steam-powered generation like a natural gas, nuclear, or coal power plant or used directly to cool the servers.³ The exact amount of water the centers use is unclear and can depend on a variety of factors.⁴ There is no good “average” number for water consumption per square foot at data centers because some data centers use non-potable water or run a closed loop system to cool their servers; others, like bit-coin mining facilities, need not run in times of resource scarcity.⁵ For example, Google states that, in 2021 on average, just one of its data centers used 450,000 gallons of water per day in its operation. That is the equivalent of water use from over 100,000 homes.⁶

Stargate, a joint venture by technology and financial companies, has focused part of its $500 billion infrastructure investment goal on Texas.⁷ Ten data centers are already under construction. The first facility aims to be completed in Abilene mid-2025.⁸ Each facility will cover half a million square feet—the equivalent to 8.7 football fields. The larger the data center, the more energy efficient they become, but there is not enough data on water consumption to say the same. The Lancium complex in Abilene will purportedly cool its servers using a closed-loop system, meaning that it should use little water directly once operational.⁹

Texans continue to face water management and supply struggles as the state continues to develop and drought conditions persist, so local governments should begin planning for the potential of added water stress especially if localities want to court companies building these data centers, if they have not already. Texas cities will continue to face water management struggles as data centers expand, so cities should consider the interest of companies like Stargate to locate data centers here and begin planning for the potential of added water stress today. Municipal strategies to address increased water usage from data centers could include development agreements, increasing impact fees, CCN decertification¹⁰ or deannexation or reviewing and amending city ordinances addressing non-standard service agreements to include users with high consumptive needs. After all, developments such as these can bring great economic boons to cities through increased tax revenue, jobs, and infrastructure investment.

Negotiating development agreements with tech companies to offset the costs of infrastructure replacement, expansion, or upsizing or with the acquisition of new water rights or sources could be a mutually beneficial way to court tech development—especially in a municipality’s extraterritorial jurisdiction.¹¹ Most municipalities in Texas have the power to enter into economic agreements either by charter or general law. Cities and companies can negotiate for the companies to fund the improvements or expansion to water systems and share or allocate the costs related to the acquisition of new sources of water so long as the projects are directly related to the infrastructure needs for the new data center.¹²

If municipalities or water supply organizations with CCNs cannot provide data centers with the capacity of water that they need, the property owners where the data centers are sited could request decertification from a CCN.¹³ This action would thereby require companies within municipalities or CCN areas to be their own water providers. Of course, this may not be legally feasible for some water utilities depending on the location of the data center. If a proposed data center is located within a municipality, the owner of the property where the data center is located could petition a municipality to deannex the property (removing the property from its incorporated area). Deannexation, however, comes with costs to a city, and potentially other local government entities such as school districts, in the form of lost tax revenues.

Municipalities should think critically and creatively about amending or adding special conditions to non-standard service agreements for large water consumers. This is typically already the norm in cities that have large industrial or manufacturing presences while other smaller cities either do not have the statutory authority or the means to have a planning department.

Overall, the time is now for municipalities to address the potential for added stress to water infrastructure from data center projects and there are options and grand opportunities for communities who rise to meet the challenge.

¹Kayla Guo, Data Centers are Booming in Texas. What Does That Mean for the Grid?, TEX. TRIB. (Jan. 24, 2025), https://www.texastribune.org/2025/01/24/texas-data-center-boom-grid/.
²See Tex. S.B. 2222, 89th Leg., R.S. (2025) (noting that H.B. 5588 provides the same). https://capitol.texas.gov/tlodocs/89R/billtext/html/SB02222I.htm.
³Rasheed Ahmad, Engineers Often Need a lot of Water to Keep Data Centers Cool, AM. SOC’Y CIV. ENG’R (Mar. 4, 2024), https://www.asce.org/publications-and-news/civil-engineering-source/civil-engineering-magazine/issues/magazine-issue/article/2024/03/engineers-often-need-a-lot-of-water-to-keep-data-centers-cool.
⁴David Berreby, As Use of A.I. Soars, So Does the Energy and Water It Requires, YALE ENVIR. 360 (Feb. 6, 2024), https://e360.yale.edu/features/artificial-intelligence-climate-energy-emissions.
⁵Jacob Roundy, How to manage data center water usage sustainably, TECHTARGET (Jan. 17, 2024), https://www.techtarget.com/searchdatacenter/tip/How-to-manage-data-center-water-usage-sustainably.
⁶Matthew T. Ziegler, The world’s AI generators: rethinking water usage in data centers to build a more sustainable future, LENOVO STORYHUB (Mar. 22, 2024), https://news.lenovo.com/data-centers-worlds-ai-generators-water-usage.
⁷Shelly Brisbin, Stargate’s $500 billion bet on AI, TEX. STANDARD (Jan. 23, 2025), https://www.texasstandard.org/stories/stargate-ai-artificial-intelligence-trump-altman-musk/.
⁸Id.
⁹LANCIUM, Abilene, TX Clean Campus, https://lancium.com/abilene-tx-clean-campus/ (last visited Apr. 22, 2025).
¹⁰“CCN” means a Certificate of Convenience and Necessity as granted by the Public Utility Commission of Texas.
¹¹Development agreements for municipal services are common for property in a city’s extraterritorial jurisdiction under Tex. Local Gov’t Code § 212.172, but it may be more difficult for cities to plan for future residential and commercial development if the water is tied up in data centers.
¹²See generally Tex. Local Gov’t Code, Ch. 51.
¹³Tex. Water Code § 13.254(a-1). See also 16 Tex. Admin. Code § 24.245.

Toni Rask is an Associate in the Firm’s Water Practice Group. If you have any questions or would like additional information related to this article or other matters, please contact Toni at 512.322.5873 or trask@lglawfirm.com.