Most of the water data centers need is used beyond their four walls, at the power plants that keep the facilities operating. A new Ceres analysis released today, Water Behind the Watts: The Hidden Risk of Powering Data Centers, examines this largely overlooked water demand across seven states that together host about half of all U.S. data centers—Virginia, Texas, California, Illinois, Georgia, Ohio, and Arizona. In these states, water-intensive generation supplies much of the grid—and many of the plants supplying that power are in regions facing water stress or drought. 

Public discussion typically focuses on the water used to cool the technology inside data centers, yet water for power generation could account for 72% of total water consumption by U.S. data centers by 2030, even as the facilities use more water efficient cooling and reclaimed water within their operations. Ceres’ 2025 research helped bring this aspect to light—this new analysis digs deeper to understand the risks this poses to data center operators, power producers, communities, and investors, and how each can support responsible AI development in the U.S. that protects local water resources while securing financial returns and business continuity. 

“Data center demand and build out will continue, so it’s critical that happens sustainably, without compromising local water supplies,” said Kirsten James, senior program director of water at Ceres and report co-author. “Better planning starts with understanding the full scope of data center water dependency and impacts, including the water needed to make electricity to power them.” 

The report’s key findings:  

• Power generation makes up the bulk of the data center water use. Data centers in the states analyzed depend on about 3.4 trillion gallons of freshwater annually for electricity, around 12 times the annual water use of Los Angeles, Phoenix, and Washington D.C., combined. 
• The amount of water needed to produce electricity varies widely by state, depending on the type of electricity generation used. 78% of the electricity in the states analyzed came from power plants that use water to operate. 
• Most electricity is generated by power plants located in areas facing water stress or drought (or both). In these states, 66% of the electricity generated using water came from areas facing medium-high to extremely high water stress.
• Most power producers identify data centers as a primary driver of rising electricity demand, but few have considered the potential water risks tied to this growth.  
• Most companies operating data centers do not take into account the water risks linked to the electricity they purchase. 

Construction of AI-driven data centers has outpaced what most communities planned for. Local opposition rooted in water and grid capacity concerns disrupted $130 billion in data center projects in the first quarter of 2026, and a growing number of states are enacting policies adding guardrails to new data center development. Data center companies can also face operational constraints if their power supply is disrupted because of water shortages. On the Colorado River, for example, the two largest reservoirs recently hit record lows, edging toward the minimum levels needed to generate hydropower for communities and industries in states including Arizona and California.  

“No single stakeholder can address these challenges alone—there are actions each can take to mitigate the water risks tied to powering data centers,” said Shama Perveen, director of water research at Ceres and report co-author. “For data center companies, this starts with assessing and disclosing both direct water use and water embedded in the electricity they purchase. This is the foundation for better understanding water risk linked to procuring electricity and working with power producers and peers in a precompetitive space on best practices to minimize impacts to local water resources, especially in water-stressed areas.” 

The report also includes recommendations for power producers, including:  

• disclosing plant-level water use and sources 
• integrating water risk from data center demand into planning and infrastructure decisions 
• collaborating with customers, water managers, and community stakeholders to adapt to future shifts in water supply and increased demand for power  

The heavy reliance on water to make the energy to power data centers also creates risk for investors. The report provides key actions for investors including:  

• calling for more comprehensive disclosures from data center companies and power producers 
• encouraging data center companies to show how they are factoring water stress and drought into procurement and siting decisions 
• engaging with data center companies through platforms such as the Valuing Water Finance Initiative to understand how they are mitigating water risk to support long-term value creation 

The report provides recommendations for policymakers to help ensure water used to generate electricity is part of policy actions and decisions supporting sustainable data center development. These include: 

• requiring standardized reporting on both direct and indirect water use embedded in purchased electricity  
• incentivizing lower water use technologies and water conservation practices and low water-intensive renewable energy  
• ensuring siting, permitting, infrastructure and resource-planning accounts for water stress, seasonal water supply and demands and community impacts 
• ensuring behind-the-meter electricity generation minimizes impacts on local freshwater resources, especially in water stressed regions  

This report is part of Ceres’ broader body of work on sustainable data centers. Our resources page includes Ceres’ latest research and expert analysis, including our recently released Investor Guide to Addressing Electric Power Risk from Data Center Growth and Sustainable Solutions for Data Centers.