Water and cooling for Opportunity Zone data centers

About 17.4 billion gallons (66 billion liters) of direct, on-site use by U.S. data centers in 2023, according to Lawrence Berkeley National Laboratory's 2024 report, with on-site use projected to double or quadruple by 2028.^1,2 Indirect use through the electricity data centers consume was far larger: about 211 billion gallons in 2023.²

Most direct use comes from evaporative cooling, where water is evaporated to reject heat. Facilities that use air-cooled chillers or closed-loop systems use much less water on site but more electricity, which shifts water use to power plants. LBNL's 2025 update projects data centers at about 649 TWh, or 11.8% of U.S. electricity, in 2030 in its reference case, so both water and power demand are rising.¹⁰

Three broad approaches, chosen mainly by rack density and climate. Rack density is the power drawn by one rack of servers, and it determines how much heat must be removed from a small space.

Efficiency has plateaued. Uptime Institute reports global average power usage effectiveness (PUE), total facility power divided by IT power, hovering above 1.5 and essentially flat for about six years.⁴ New liquid-cooled designs can do better, but older air-cooled fleets keep the average high.

Water is a gating factor alongside power. Many Opportunity Zone (OZ) tracts are rural, where water systems may be small and agricultural users compete for supply. Before committing equity, a sponsor should confirm in writing what the local water and wastewater utility can serve, or whether on-site wells and treatment are needed. That is practical analysis, not a rule.

Climate and design interact. A closed-loop design reduces water demand but raises peak electricity demand, which may require more grid capacity. In states where EPRI projects data centers could exceed 20% of state electricity use by 2030, including Arizona, Nevada and Oregon, both constraints apply.¹¹ See data center site selection inside Opportunity Zones and rural data centers and Opportunity Zones.

Because it is one of the most visible local impacts and opposition is growing. Data Center Watch reports that at least 75 projects worth about $130 billion were blocked or delayed in the first quarter of 2026, and that opposition groups grew from 396 to 833 between the end of 2025 and the end of Q1 2026.⁹ Pima County, Arizona adopted a 120-day moratorium on new data center projects in unincorporated areas in September 2026.⁸

Publishing water use estimates, choosing closed-loop cooling and funding local water infrastructure can all help. Opposition delays also carry an OZ cost: a stalled approval can push spending beyond the working capital safe harbor. See community engagement for Opportunity Zone data centers.

As tangible property, counted by who owns it and where it is used. A Qualified Opportunity Zone Business (QOZB) must have at least 70% of the tangible property it owns or leases be qualified zone business property: acquired by purchase from an unrelated party, original use in the zone (or substantially improved) and used in a zone for substantially all of the holding period.⁶

• Chillers, cooling towers, coolant distribution units and dry coolers the QOZB buys new and installs in the zone count as qualifying property.
• Cooling equipment the tenant buys and owns, such as rack-level liquid cooling, is the tenant's property and outside the QOZB's tests.
• Off-site water mains, wells or treatment plants owned by a municipal utility are the utility's property.
• Short-lived mechanical equipment acquired after January 19, 2025 may qualify for 100% bonus depreciation; the building shell does not.¹²

Why landlord-run cooling helps the active business test

The regulations say merely entering into a triple-net lease is not the active conduct of a trade or business, and a final-regulation example treats a landlord as active where on-site employees meaningfully take part in management and operations.⁷ A landlord QOZB that owns and operates the cooling plant, staffs critical facilities and provides cooling as a service has more defensible facts than one that hands the building to a tenant. This is analysis, not settled law; see data center lease structures in Opportunity Zones.

It is new spending that can strengthen the asset base. Rack densities have risen fast, from about 40 kW for air-cooled H100 racks to about 120 kW for GB200 NVL72 racks.⁵ A data center designed for air cooling may need liquid cooling within a 10-year hold to stay leasable.

New cooling equipment bought from an unrelated party and placed in service in the zone is itself qualifying property. Replaced equipment that is sold before year 10 does not get the 10-year exclusion, and the fund has 12 months to reinvest any proceeds for its 90% asset test. Plan retrofits in the business plan from the start. See servers, equipment and the Opportunity Zone rules.