Growing data-center demand at odds with Colorado climate goals

COLORADO SPRINGS — The banks of black computer servers with twinkling amber and green lights sit in a large, nondescript, tan building, surrounded by a high, spiky steel fence on the edge of the city.

It is in computer banks like these that our collective memories reside. Our photos, our videos, documents, passwords, best routes to grandma, business information and our chats with ChatGPT. The memories keep piling.

And that is leading to a data center boom, with centers getting bigger, hungrier for power and thirstier for water, raising concerns about their impact on the environment and electric rates even as the sector looks to get greener and more efficient.

When Salt Lake City-based Novva Data Center purchased the Colorado Springs facility in 2021, it was a single building with 3 megawatts of capacity. The company’s plan is to add three more buildings with a total of 40 MW.

“The data center industry, it’s bursting,” said Wes Swenson, Novva’s CEO. “Automation, artificial intelligence, business continuity, autonomous driving, all these things are driving more demand for cloud and chips and data centers.”

The capacity of Front Range data centers is projected to triple to 301 megawatts in the next few years, according to the annual North American Data Center Report by the real estate management company JLL.

“Denver and Colorado Springs will see a rise in supply as providers continue to expand their power capabilities on existing sites along with new developments, which we will see come online in the next couple years,” the report said.

The largest of these new facilities, a so-called hyperscale center, is under construction by QTS Realty in Aurora. With a 160 MW load it will be Xcel Energy’s largest customer, eclipsing steel plants and mines.

The load for the center is “projected to potentially escalate up to 252 MW,” according to a filing with the Colorado Public Utilities Commission. A megawatt of generating capacity is enough to power 700 to 1,000 homes.

“We are generating data through everything we do — your washing machine, your refrigerator, your car generate data,” said Newsha Ajami, director of urban water policy with Stanford University’s Water in the West Initiative.

“What we are missing here is that this is a growing industry. We are at the inception of data centers,” Ajami said. “They are going to pop up everywhere.”

Even with a tripling of capacity, Colorado remains a secondary market for data centers and there are efforts underway to add incentives to bring the sector to the state.

Xcel Energy wants to give QTS a deeply discounted rate for its electricity, a move that must be approved by the PUC, and a bill in the legislature would grant new or expanding data centers a rebate on their state sales tax over the next seven years.

“This is part of diversifying your economy, improving the local tax base,” said Sen. Kevin Priola, a Henderson Democrat and co-sponsor of Senate Bill 85. “This is infrastructure, similar to building a port or a highway.”

But given the building boom underway, utility regulators and budget analysts question whether discounted electric rates or tax rebates are even needed.

“Colorado is already a pretty attractive place for a data center,” said Caroline Nutter, legislative coordinator for the nonprofit Colorado Fiscal Institute. “We just don’t need to spend taxpayer money to bring them here.”

The tax rebates would reduce state revenues by about $10 million in 2027, rising to $40 million in 2034, according to the bill’s fiscal note.

The first wave in data center building was around 2008 and then a second wave started with the advent of the public cloud in 2013, according to Jim Kerrigan, managing director of North American Data Centers, an industry real estate advisor.

“Now in 2023, we saw this thing called AI really come out,” Kerrigan said. “Just as the public cloud created a surge, you definitely have AI as being the same sort of disrupter.”

AI power demands are more intense. Kerrigan said customers initially used 5 to 7 kilowatts per cabinet, or server. When the public cloud arrived it rose to 20 kilowatts and with AI it is now 50 to 68 kilowatts per cabinet, going up to 120 kilowatts.

“So with AI there is a smaller footprint, but a lot more power,” Kerrigan said.

Still, centers are also growing bigger. “Cloud and hyperscale demand continue to dominate in the larger markets,” the JLL report said, adding that “new demand from Generative AI requires tremendous amounts of power.”

While data centers used to be in the range of 20 MW to 100 MW, some AI facilities are now 300 MW to 500 MW, according to JLL.

In Virginia, home to the greatest concentration of data centers in the world, there is a plan for the world’s largest data center, with 22 million square feet of space, 37 buildings and 14 electric substations and multiple sets of transmission lines.

“Whoever called it the cloud was brilliant,” said Julie Bolthouse, land use director for the Warrenton, Virginia-based nonprofit Piedmont Environmental Council. “The data isn’t in a cloud but in massive, noisy buildings.”

The growing demand for electricity has set off a hunt for new sources of power beyond the primary markets like Chicago, Dallas-Fort Worth and Silicon Valley as grids begin to fill up.

“Data center operators are prioritizing power availability, rather than selecting markets based on location, connectivity, water and land pricing,” according to CBRE, a real estate investment and service group.

“Columbus, Ohio, was a good example of a new market over the last five or six years,” Kerrigan said, “and now that market is pretty much done, because they’re out of power.”

Data centers are not only in competition for power with one another but also with cryptocurrency mines and a boom in new factories as manufacturing construction, spurred by federal incentives, rose to $225 billion in January 2024 from $79 billion in January 2020, according to the St. Louis Federal Reserve Bank.

On top of that are policies to move to a cleaner electricity grid with renewable power and efforts to electrify much of the economy with that clean power.

“We could see 2 to 4 times the electricity demand we have now in the next 25 years,” said Mark Dyson, managing director of the Carbon-Free Electricity Program at clean energy think tank RMI. “The focus on data center load growth is a practice round for the future.”

The two impacts of data centers drawing the most concern in Colorado are the growing demand for power and impact it could have on the power grid and the need for millions of gallons of water by data centers, primarily for cooling.

“If we had six of these data centers come into the Front Range that could be 2 to 3 gigawatts on the Xcel system and their system is 7.1 gigawatts,” former PUC Commissioner John Gavan said. “That’s more than all the wind and solar they have planned so what they will probably need is new gas plants and transmission and what is that going to do to rates?”

The Xcel Energy’s resource plan, approved by PUC in December, calls for adding about 5.8 GW of new generating capacity — wind, solar and natural gas — while retiring about 1 GW of coal-fired power plants.

Xcel Energy did not answer a question from the Sun on the impact of a large increase in demand on the grid, saying only: “We manage load growth and requests of all sizes routinely.”

That growing demand for power could jeopardize the state’s Greenhouse Gas Pollution Reduction Roadmap and its ability to meet the 2030 target of a 50% reduction over 2005 levels, said Parks Barroso, clean energy manager for the environment group Western Resource Advocates.

“We are looking at increased emissions from the large data centers that are running 24 hours a day, 365 days a year,” Barroso said.

The roadmap requires an 80% cut in emissions for utilities by 2030. “We have every intention and are planning to succeed in meeting this requirement,” Xcel Energy said.

Data centers could compete with the state’s plans to electrify transportation — with the buildout of an electric vehicle charging network — and electrifying building heating systems, Barroso said.

Xcel Energy is already forecasting a 21% increase in annual electricity sales over the next eight years to 40,300 gigawatt-hours in 2030. A gigawatt is enough electricity to power 750,000 homes.

“What we are seeing in Colorado is that there is going to be a lot of demand put on the electric system in the coming years,” Barroso said. “Utilities are already challenged in addressing this and data centers could jeopardize other policy goals.”

In addition to load, there is the question of the center’s impact on utility investments and rates charged by Xcel Energy’s subsidiary Public Service Company of Colorado.

“PSCo cannot take on a customer the potential size of QTS without creating additional overhead expenses,” Ronald Fernandez, financial analyst for the Colorado Office of Utility Consumer Advocate, said in a PUC filing.

In Virginia, three high-voltage transmission projects are being planned and the electric utility, Dominion Power, is forecasting data center power demands to rise to 10 GW in 2035 from 2.67 GW in 2022.

“We’re just piling up the cost of all this infrastructure that the ratepayer is going to have to pay down the line because it’s not like we can go back once we’ve approved the data center and they started building it,” said Piedmont Environmental Council’s Bolthouse.

The utilities simply may not be able to keep up, said Novva’s Swenson. “The utilities could never have anticipated this kind of demand, this surge. The grid is not prepared for it.”

“There is a lot of demand and we see this in every state that we operate in, in the western U.S. there is a shortage,” Swenson said. “I don’t see utilities, especially regulated utilities, keeping up with this. They would have to double their generation to keep up.”

RMI’s Dyson said that there are strategies utilities can use to meet some of the demand like replacing existing transmission lines with new ones that can carry double or triple load to avoid expensive new transmission projects.

The solution, Swenson said, may be for data centers to make their own power using microgrids and to become “energy independent.” This will also remove data centers from the overtaxed, under-invested grid.

For now, however, most of the data centers are still hooking up to the grid. For its Aurora facility, QTS is paying $28 million for a 1.4-mile high-voltage transmission line to link to Xcel Energy’s grid.

As important as the availability of power is the price, Kerrigan said. For example, he said, data centers have moved from Los Angeles to Nevada, which has cheaper rates. Competitive rates have been in the 2 cents to 5 cents a kilowatt-hour range.

The discounted rate Xcel Energy is proposing to offer QTS is confidential. It is pending before the PUC.

In PUC testimony, QTS vice president of energy and sustainability Travis Wright said, “since 40% of the operational cost of the data center is electricity, our business model can succeed or fail within a very thin margin.”

“The largest and fastest-growing operations in our portfolio are in markets where electricity costs are competitive,” Wright said.

The other potential environmental impact is the centers’ consumption of water, primarily as a coolant. A data center generates a lot of heat while the optimal temperature for the operations is between 60 and 80 degrees Fahrenheit.

“Excessive heat in a data center can create ‘hot spots,’ leading to malfunctioning server components such as processors and memory,” according to Dgtl Infra, an industry information clearinghouse.

“They do demand a lot of water, especially the way they are built, because they need cooling and often the cheapest means of cooling is water,” said Stanford’s Ajami.

A Virginia Tech analysis of data centers water scarcity footprint (a measure of demand over supply) found that 40% of the data center water scarcity footprint was in the West even though in 2018 only 25% of the centers were in that region.

“That’s because data centers in the United States are disproportionately located on and consume direct water for cooling from water-stressed regions such as the West and Southwest,” Landon Marston, a Virginia Tech engineering professor and co-author of the paper, said in an email.

“While data centers may not currently pose a widespread threat to water resources on a national scale, there have been instances where large-scale data center operations have disrupted local water supplies,” Marston said.

Water impacts, however, are rarely taken into consideration, Ajami said. “Water is always left behind in making decisions.”

That, however, may be changing,according to Morningstar Sustainalytics, a research and rating service for corporate environmental, governance and social policies.

“Recently, some companies operating data centers in the United States, including New Mexico, Arizona, and South Carolina, have faced pushback from local communities and water conservation stakeholders competing for the same water resources,” a Sutainalytics report said.

While Colorado and the West have suffered a 20-year drought and there is haggling over the future of the dwindling Colorado River, a hyperscale data center with evaporative cooling can, according to Dglt, use more than 200 million gallons of water a year, about 550,000 gallons a day — enough to supply 1,200 households of four to five people for a year.

By comparison Xcel Energy’s 750-MW Comanche 3 coal-fired power plant uses 9.4 million gallons a day.

Alternative forms of cooling use more power and so the fall back has been to use evaporative cooling, Ajami said.

“There was a time when power was expensive and water was cheap, but that’s changing,” said Cody Kent, mission critical engineer at Novva’s Colorado Springs center.

Advances have been made in cooling technology that sharply reduce water use, Novva’s Swenson said.

Novva uses a closed-loop cooling system that is filled with water once and is then recycled. Up to 72 degrees Fahrenheit, the ambient air can be used to cool the water. When it gets really warm additional refrigeration is used.

The company is also using a new direct-chip cooling system,which rather than cooling the air around the servers employs tiny cooling tubes that are run over the chip. “This is much more efficient,” he said.

The average water use for a Novva center is about 6,000 gallons a day including its sewer discharge, Swenson said.

“We can locate our centers anywhere in the West,” he said. In addition to Colorado Springs, Novva has centers in Utah, Nevada and California.

QTS also has a proprietary “Freedom” cooling system that uses a low-pressure pumped refrigerant and relies on air cooling.

“Many regions that offer solar- and wind-generated power are water stressed with water demand exceeding supply,” QTS said in a whitepaper. “Unlike other data centers that need to pull water resources from these already strained areas to cool their facilities, QTS’ Freedom design requires no water for cooling to greatly limit its water requirements.”

Still, many data centers require large amounts of water and Swenson said “the sad part of water in the West, and it doesn’t get enough focus, is that the water, as much as 300,000 gallons a day for a center, has to be potable water.”

Novva’s Colorado Springs center is still using evaporative cooling. Pipes with cold water circulate in the floor below the servers and come up through tiny holes in the floor. Fans suck the cold air into the computers and out the back into a hot aisle — where it is much warmer. The hot air is vented through the ceiling and carried away.

A closed-loop system is set to be installed next year, Kent said.

QTS also has a goal of procuring 100% of its power from renewable energy sources by 2025. The biggest global corporate purchasers of wind and solar include Meta, Amazon, Google, Microsoft and Apple. The five have contracts globally for 45 GW of electricity.

As for incentives to bring data centers to Colorado, state Sen. Priola said, “I know there are naysayers I’d like to work with, perhaps adding amendments to address environmental concerns.”

“We can’t put them all in Wyoming running on coal-fired electricity,” Priola said.

Last December, Virginia’s Joint Legislative Audit and Review Commission authorized a study to assess the impacts of data centers in the state and expected trends, but Bolthouse said that comes only after a tremendous building boom.

“I would say for Colorado, I don’t think you guys have a huge market over there,” Bolthouse said. “I would be encouraging your state to think about this proactively, to realize how much power these facilities are going to require. How much infrastructure and transmission lines, all of that, and assess it prior to approving these data center facilities, and make sure that it actually does make sense.”

Colorado Springs

Based on facts, either observed and verified directly by the reporter, or reported and verified from knowledgeable sources.

Mark Jaffe writes about energy and environment issues for The Colorado Sun. He was a reporter and editor at The Denver Post covering energy and environment and a reporter on the energy desk at Bloomberg News. Previously, he was the environment... More by Mark Jaffe