Texas reservoir capacity levels, March 26, 2025. Source: Drought.gov / National Integrated Drought Information System.

Texas is growing, and communities across the state are feeling the strain.

From water scarcity to rising energy demand, local leaders are navigating a complex challenge: how to support continued economic growth while managing increasingly constrained resources. Drought, population growth, and infrastructure demand are no longer future concerns, they are shaping decisions today in cities and counties across Texas.

A recent white paper from the Houston Advanced Research Center (HARC), “Thirsty Data and the Lone Star State: The Impact of Data Center Growth on Texas’ Water Supply,” brings this tension into sharp focus. 

“If you ask state and local leaders…they’ll likely talk about the jobs and revenue this new industry could bring,” the report notes. “Ask them about the boom’s impact on electricity and water use, and their excitement will fade quickly.”

That concern is understandable, but it is only part of the story.

A More Complete View of Data Centers

Much of the public conversation around data centers focuses on their electricity and water demand and those concerns are real. These facilities can require substantial resources, particularly at hyperscale. But focusing only on consumption misses an important reality: data centers are also major economic engines.

A recent economic analysis of Project Cinco, a planned hyperscale data center in Medina County, projects: 

• $3.6 billion in economic output over 20 years
• 172 permanent jobs supported locally, despite only 40 direct hires
• 635 construction jobs during buildout
• $179 million in net fiscal benefits to local taxing entities over 20 years, even after tax abatements

These numbers challenge another common misconception that data centers don’t create enough jobs to justify the infrastructure demand. They can, and often do, create meaningful long-term economic value and enhance the local tax base 

The real question is not whether they should exist. It is whether they can be built and operated more efficiently.

A Resource-Intensive Future

The HARC report highlights what many are beginning to recognize: large-scale infrastructure, particularly data centers, can place significant demands on both water and energy systems.

Today, data centers in Texas already consume billions of gallons of water annually when accounting for both direct cooling and the water required to generate electricity. That demand is expected to rise sharply.

“No one…knows how we will meet the industry’s insatiable demand for water and electricity,” HARC’s report states. The implications extend far beyond a single industry.

Not Just Data Centers

While data centers are a highly visible example, they are not alone. Commercial buildings, industrial facilities, and multifamily developments all contribute to rising demand on shared infrastructure. At the same time, many still rely on outdated or underperforming systems.

The issue is not growth itself. It is how that growth is delivered. Demand may be inevitable. Impact is not.

The Role of Technology and Tradeoffs

Efficiency is not one-dimensional. In data centers, cooling strategies such as dry or closed loop cooling, direct liquid cooling, and hybrid systems can significantly alter water and energy use. 

Reducing water consumption at the facility level may increase electricity demand and, because energy production itself consumes water, those decisions can simply shift resource use rather than reduce it. Water and energy are deeply interconnected.

Effective decision-making requires a systems-level view, one that evaluates tradeoffs and long-term outcomes, not isolated gains.

The Technology Is Evolving Faster Than the Headlines

Public concern about data centers often assumes all facilities use large amounts of potable water through conventional evaporative cooling. That is increasingly outdated.

Many next-generation data centers, particularly those designed for AI workloads, are moving toward advanced cooling technologies such as direct-to-chip liquid cooling, immersion cooling, hybrid systems, and closed-loop designs that significantly reduce or even nearly eliminate onsite water consumption. At the same time, many operators are shifting away from potable water toward reclaimed wastewater and other non-potable sources.

While this does not eliminate resource concerns, it does mean the conversation should move beyond a simplistic assumption that all data centers are water hogs. The better question is this: What technology is being deployed, what water source is being used, and how efficiently is the facility designed?

Where Financing Changes the Equation

If higher efficiency technology exists, why isn’t it always used? Often, it comes down to cost and how projects are financed.

Efficiency measures are frequently identified early in design, only to be removed during value engineering, not because they lack value, but because they are treated as optional.

Financing options can change that. Through programs like TX-PACE, property owners can incorporate energy and water efficiency improvements into their capital stack, allowing higher-performance systems to be included from the outset, rather than scaled back or eliminated.

Across Texas, this approach is already delivering results. Projects listed by Texas PACE Authority, including the Westin Houston Medical Center/Museum District, the Sinclair Hotel, and Jackson Street Apartments, demonstrate how TX-PACE financing has supported energy and water efficiency improvements in real buildings. These are not theoretical outcomes. They are real projects where creative financing alternatives enabled better decisions.

From Reactive to Intentional

Texas will continue to grow. This growth is driven by population, industry, and innovation. The question is not whether development will occur. It is whether it will be shaped intentionally.

That means:

• integrating efficiency into project design from the beginning
• aligning financing with long-term performance
• recognizing the connection between water, energy, and infrastructure
• holding even high-growth sectors like data centers to smarter resource standards

Tools like TX-PACE are not a standalone solution. But they are a practical, proven way to ensure efficiency is not treated as optional.

What Comes Next

Texas does not have to choose between growth and sustainability. The two are fundamentally connected. Data centers, and every other major building type, will continue to expand across the state.

The decisions made today about how those projects are designed, financed, and built will determine whether growth strengthens Texas, or strains it. If growth is inevitable, efficiency must be part of the equation.

About Texas PACE Authority

Texas PACE Authority (TPA) is a nonprofit organization and the leading administrator of TX-PACE programs serving 111 cities and counties across Texas, at the time this article was written. TPA works with local governments, property owners, and capital providers to facilitate financing for energy and water efficiency, resiliency, and distributed generation improvements in commercial properties. Through its program administration and market leadership, TPA helps ensure that high-performance building solutions are accessible, scalable, and aligned with the long-term needs of Texas communities. 

www.texaspaceauthority.org

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References

Houston Advanced Research Center. Thirsty Data and the Lone Star State: The Impact of Data Center Growth on Texas’ Water Supply.
https://harcresearch.org/research/thirsty-data-and-the-lone-star-state-the-impact-of-data-center-growth-on-texas-water-supply/

Rowan Digital Infrastructure. Rowan in Medina County: Our Commitment.
https://www.rowanmedina.com/commitment

Lawrence Berkeley National Laboratory. Liquid Cooling. Center of Expertise for Energy Efficiency in Data Centers.
https://datacenters.lbl.gov/liquid-cooling

Texas PACE Authority. Project List.
https://www.texaspaceauthority.org/project-list/