The race to build data centers is accelerating, but speed and capital alone do not determine whether a project moves forward. Increasingly, developers must answer two fundamental questions early: Is enough power available? And can the site support the facility's cooling needs?
As demand for AI computing and cloud infrastructure grows, access to power and water is influencing where projects are built, how facilities are designed and what it may cost to operate them over the long term. For developers and contractors, understanding those constraints early can help avoid costly changes later in the project.
Power
At its core, a data center is an energy-intensive asset. The rapid evolution of computing workloads, particularly the shift toward AI training and inference, has dramatically increased the power density of modern facilities. Just five years ago, typical rack densities ranged from 5 to 8 kilowatts; today, many new facilities are being designed to support between 15 and 50 kilowatts per rack, fundamentally altering both infrastructure requirements and site selection criteria.
This increase in density translates directly into higher overall power demand, with even mid-sized facilities requiring several megawatts of capacity and hyperscale developments demanding as much as 100 megawatts or more.
As a result, access to reliable, scalable electrical infrastructure has become a critical factor in determining project feasibility. In many traditional data center hubs, power availability is no longer keeping pace with demand.
This dynamic is forcing developers to expand beyond established markets such as Northern Virginia and into "frontier markets," including West Texas, Tennessee, Wisconsin and Ohio; locations where grid capacity is more readily available. In Texas alone, more than 6.5 gigawatts of data center capacity is currently under construction, underscoring both the scale of demand and the geographic shift underway.
Yet access to power is not simply a matter of proximity to the grid. Developers must also account for reliability, redundancy and long-term scalability. Data centers are facilities where even brief outages can have significant financial consequences.
"To be in data center construction in many cases means you are in power generation construction — the data centers of 2026 and beyond are going to be two construction projects in one: power generation and data halls," says Ted Way, area executive vice president, Gallagher Construction Services.
Data centers are designed with multiple layers of power continuity, including uninterruptible power supply (UPS) systems to manage short-term disruptions and on-site backup generation (most commonly diesel generators) to ensure continued operation during extended outages. Increasingly, some operators are also exploring on-site or dedicated power-generation solutions to mitigate grid constraints.
Water
Parallel to the challenge of power availability is the equally critical issue of cooling. The immense heat generated by densely packed servers must be continuously managed to maintain performance and prevent equipment failure.Historically, air-based cooling systems have been the standard approach, supported by large-scale HVAC infrastructure. However, as rack densities increase and thermal loads intensify, liquid cooling technologies — many of which rely on water or specialized fluids — are gaining traction due to their efficiency in high-density environments. This shift has elevated water from a secondary consideration to a central factor in site selection and design.
Large-scale data centers, particularly those utilizing evaporative cooling systems, can consume millions of liters of water annually. While these systems can offer significant energy efficiency benefits compared to air-only cooling, they also introduce new challenges related to water sourcing, sustainability and community impact.
In water-constrained regions, such demand can place additional strain on already limited resources, creating potential conflicts with residential, agricultural and industrial users.
As a result, water stewardship has become a vital component of data center development. Developers are placing greater emphasis on strategies such as the use of recycled or non-potable water, closed-loop cooling systems and site selection in water-abundant regions.
Transparency around water usage has also grown in importance, as regulatory scrutiny and stakeholder expectations continue to evolve. The environmental implications of drawing from municipal supplies, groundwater aquifers or surface water sources must be carefully evaluated, as each carries distinct ecological and operational risks.
Expert guidance pays off at every step
It's therefore not surprising that the remote locations in which data centers must be built present their share of challenges, both for logistical reasons and potential exposure to natural catastrophes."The sites that work best for data centers tend to be very challenging from a geographic risk standpoint," says Way. "There are multiple factors that must be taken into account."
The potential exposure to wildfire, earthquake, flood, severe convective wind, named wind and storm surge must be determined, he says, when sites are being considered. Once those risks are ascertained, Gallagher's catastrophe modeling report details the probable maximum loss from those perils. Recommendations can be made for site alterations to mitigate potentially expensive losses.
Way recalls one client who previously had not yet brought Gallagher's team into the site selection process and soon learned expensive lessons in securing windstorm coverage while construction was underway. Now, they leverage the guidance of Gallagher's Construction team from the start of every project.
"There's no one-size-fits-all solution for any construction project, particularly with data centers," Way adds. "It's about having a process in place and relationships in the market, so that when we ask for the proper amount of capacity, the markets listen. Developers move very quickly, and we move quickly with them."
Once the site's location is locked in, construction often begins within three to four weeks, at which point the exposures for contractors are brought sharply into focus.
For a full rundown of the exposures contractors face in data center projects, read our new whitepaper, Managing Risks for Contractors in a $100 Billion Market.