Data centers are crucial infrastructure for our increasingly digital society. These physical storage sites host the cloud-based services and data we use every day. With demand for these products and services growing briskly, we need more data infrastructure like data centers to store all this information.
However, the convenience of the cloud comes at a cost. Data centers use an enormous amount of electricity and water to keep the servers and networking equipment housed in these facilities cool. That water usage is becoming a problem, especially as data center operators build more facilities in arid locations.
The data on data center water usage
Data centers are very energy-intensive. According to the Department of Energy, data centers consume 10 to 50 times the energy per floor space of a typical commercial office building. Because of that, data centers in the U.S. use about 2% of the country's electricity.
Much of this power goes to keeping the servers and the storage and network equipment running 24/7/365. Furthermore, this computing equipment generates a lot of heat, so data centers need to provide a regulated temperature to keep this equipment from overheating and causing a fire. They can use air conditioning systems that cool air with water or a refrigerant or an evaporative cooling system that evaporates water to cool the air. The latter option is cheaper since water costs less than electricity. However, it uses a lot of water.
Data centers use between 3 million and 5 million gallons of water each day, equivalent to the water usage of 30,000 to 50,000 people. That's a growing concern for drought-stricken regions like the Southwest, as cities like Phoenix become a hotbed for data center development. This area recently experienced its driest 12 months in the last 126 years. Because of that, data center developers are starting to face some pushback against developing new facilities in the region.
Making data storage less water-dependent
Data center operators are working on improving the overall sustainability of their facilities, including water consumption. For example, technology giant Microsoft (NASDAQ: MSFT) pledged to be water positive by 2030, meaning it aims to replenish more water than its operations consume. The company plans to reduce how much water it uses while also investing in replenishment and conservation projects. Microsoft is working on many different solutions to reduce water usage. For example, it tested an immersion cooling system that submerges servers in a liquid that boils at a lower temperature than water and developed underwater data centers that can keep servers cooler.
Data center operators are also working to reduce their water usage by installing off-grid energy sources. For example, data center REIT Equinix (NASDAQ: EQIX) has started deploying fuel cells at its data centers. They produce fewer carbon emissions than pulling power from the grid and don't require water. The company has deployed 37 megawatts of fuel cells from Bloom Energy. It estimates these fuel cells will save around 4.8 billion gallons of water each year.
A challenge to keep an eye on
Research company Gartner expects global spending on data infrastructure to rise 6% this year to $200 billion. Meanwhile, it anticipates that number to grow by 3% to 4% per year for the next several years as data center operators race to build out the infrastructure needed to support the rapid rise of data usage. As a result, the sector's water usage will continue to grow.
That's becoming an issue as companies build data centers in areas with water problems. If data center developers don't do a better job conserving water, they might face stiff opposition to new developments in drought-prone regions. That could stunt their growth and make data storage more expensive, making it a potential headwind that investors should monitor closely.