Editor‘s Note: The Denver metro region sits at the center of one of the American West’s most complex and consequential water challenges. This series examines the interconnected systems that determine how the region secures, stores, and conserves its water while navigating the competing demands of fast‑growing urban communities and the increasingly unpredictable mountain snowpack that underpins the entire system.

From grid demand to data center construction, scaling the necessary framework to support the growing appetite for artificial intelligence will be a challenge — though water is less of an issue than energy, according to experts and policymakers in Colorado.

“It’s very hard to predict where AI is going,” Lon Huber, senior vice president and chief planning officer for Xcel Energy, told an audience at this year’s Colorado Climate Week gathering in Boulder. “But if you look at other states, the demand is just booming.”

In states like Texas, abundant, competitively priced power capacity, along with a regulatory framework to deliver it quickly, are attracting major data center developers and tech giants, such as Google and OpenAI.

Data centers and other “large load” users are driving up energy expectations across the country, as well as the need for the massive infrastructure to support them.

Experts say access to energy is the real problem — water matters, but much less at scale.

“I think it makes sense to look at the numbers in order of magnitude,” Colorado Energy Office Director Will Toor said. “The energy use from AI is a meaningful share, and it’s going to be a significant share of the overall electric demand in the state.”

“The water use is not,” he added.

Western Resource Advocates, a nonprofit environmental law and policy outfit, recently conducted modeling of data center energy and water use across the West, Toor noted.

“If you look at their numbers, they project that by 10 years from now, there might be about 6,000 acre-feet of water used for data center cooling in Colorado,” Toor said. “Right now, we use about 6 million acre-feet a year for consumptive use.”

That is, data centers would consume about 0.1% (one-tenth of one percent) of the state’s consumptive water.

On the other hand, they could use up to 20% of the state’s total electricity — if the market grows quickly.

Toor added that it is important to focus on water and cooling efficiency in data centers, and that poor siting can impact local water supplies.

“But it (water) is not a really big issue or constraint on data center development in a way that I think getting the energy policy right is,” he said.

Water consumption by data centers has often been criticized, but many companies, including Microsoft, are moving toward “zero-water” cooling techniques that use closed-loop systems and engineered fluids, reducing reliance on local resources.

The complication is that, while demand is huge, many data center projects are speculative, as developers submit multiple requests to lock in land and power deals to secure future site amenities.

“There’s just a huge amount of uncertainty, and this is a lot of what our Public Utilities Commission has been grappling with for the last couple of years in Colorado, trying to understand the scale of build that will actually come from data centers,” Toor said.

He added: “I think that there are good reasons to say that data center developers are out there shopping their projects in multiple locations for obvious reasons — you don’t know which ones are going to pan out, and you’re looking for where you’re going to be able to connect and get power quickly.”

Thirty-seven states currently offer incentives to attract data centers, but Colorado isn’t one of them. And that, industry leaders have said, is a big reason why the Centennial State serves as headquarters to eight data-center-development companies, yet none of them is investing in projects in this state. Instead, they seek to build elsewhere in the country.

For example, the Dallas-Fort Worth region, alone, according to a 2025 report by Industrial Refrigeration Pros, is home to 141 of the state’s 279 operational data centers.

By contrast, there are somewhere between 40 and 50 data centers in Denver and along the Front Range, according to multiple industry resources.

A major supporter of AI, Denver Mayor Mike Johnston has pinned much of Denver’s future on AI-driven products to increase efficiency, expand services, and generate much-needed revenue, as the city seeks to dig itself out of a $200 million budget hole.

Against that backdrop, however, Denver recently approved a ban that halts all new construction and data center development for up to a year.

Because data centers are not specifically regulated within Denver and have no specific permitting requirements, local officials said they want to press the “pause” button to give the city time to develop “thoughtful regulations” that address community safety and “equity.”

At the state Capitol, legislators mulled two competing proposals this year. One would have, among several provisions, offered tax breaks to attract large facilities. The other would have required data centers to use electricity from new — not existing — renewable sources, including solar, wind, geothermal, biomass, and limited small hydro.

A Colorado coalition of data center developers and operators urged lawmakers to pass House Bill 26-1030, which sought to offer tax breaks to attract large facilities, while calling Senate Bill 26-102 a major obstacle to new investment. Proponents of the latter bill insisted they don’t want to ban data centers. Rather, they said, they want to ensure data centers won’t slow down Colorado’s carbon goals.

Both proposals went nowhere.

Job attractors said data centers can help fund needed energy grid updates and supply construction jobs for years as they are built, while environmental advocates worry they over-consume water and use a ton of energy.

Officials said they want to understand the complexities that data centers bring.

“These (data center) projects present new and complex issues that argue for better alignment between Colorado’s economic development, energy, and water strategies, particularly given the obvious impacts of water scarcity in our region driven by climate change,” Denver Water CEO and Manager Alan Salazar said in a statement to The Denver Gazette. “Denver Water, too, believes it is vitally important to fully understand the effects of data centers on water delivery and supply, and will continue to assess their potential impacts on our infrastructure and communities.”