When the Cloud Hits the Ground: Data Centers, Communities and the Business of Balance

When several large data centers were proposed in Loudoun County, Virginia, a couple of years ago, residents learned the projects would be allowed “by right.” That means, they wouldn’t require public hearings or local government approval. Home to what is known as Data Center Alley, the county already has nearly 200 data centers with dozens more in the pipeline.

Public backlash was strong. Residents organized petitions and packed county planning meetings to protest the facilities’ scale, noise, water and electricity use, and architecture. As a result, the county board voted in March 2025 to end by-right zoning for data centers, requiring public review and special exceptions for future projects.

To Byrne Murphy (MBA ’86), who grew up in Northern Virginia and pioneered sustainable data centers in Europe, the conflict could have been avoided.

“Demand exploded so much and so fast, the industry struggled to catch up. These operators were under massive pressure to produce — so they did,” he says. “It’s the story of the product life cycle for most every explosive new product or industry. But the operators — and public officials — should have understood the implications of what was to come.” They did not take into account the wider context: the communities in which they operate.

There are somewhere between 5,000 and 5,500 data centers in the United States, according to various sources. Exact totals are challenging to pin down. More than 2,200 additional data centers have been announced. Source: Ateri

Loudoun County is not alone. The growth of data centers is a global story, but developing them the right way has to start at the local level, says Murphy, owner of Kitebrook Partners. Murphy co-founded DigiPlex, one of the original data center operators in Europe, in 2001 and sold the company in 2021. Murphy launched Kitebrook Infrastructure, a developer of AI-enabled data centers, in 2023.

“Local is king. Context is key. Even in America, what happens in Texas doesn’t happen in Massachusetts doesn’t happen in Oregon. For water, power, zoning, architecture — context matters a lot.”

An Economic Boom Runs Into Resource Constraints

Data centers have been around since the 1950s, but they gained traction with the growth of the internet and were boosted again by the rise of cloud computing in the last decade. Since OpenAI’s public release of ChatGPT in November 2022, the exploding use of artificial intelligence has driven a new data center building boom.

Northern Virginia, Texas, Northern Illinois, Arizona and the Pacific Northwest are considered development hotbeds, but data center developers have proven they will go wherever they can successfully build a facility.

Data centers consumed about 4.4% of total U.S. electricity in 2023, but are expected to use between 6.7% and 12% by 2028. Source: U.S. Department of Energy.

As the building boom advances, constraints in public resources are emerging. Disadvantaged communities that are dependent on electricity and water utilities are especially vulnerable, says Professor Vidya Mani, a supply chain expert. “If you want to create a data center, you have to be very careful to make sure that it doesn’t disadvantage a section of society that’s already suffering. It’s not a new societal problem or new ethical problem. It’s a new technology.”

Despite a fiercely competitive environment, operators can find ways to align their goals with local needs, Murphy says.

“Let’s not be naive: The speed with which everything is happening is affecting how these projects roll out,” Murphy says. “If they roll out too big and too fast, and with zero consideration for the wider community, then bad outcomes result.”

One such outcome is that those communities are pushing back — with dramatic effect. Darden professors are focused on two critical resource constraints that businesses must navigate with communities and policymakers to align interests: electricity and water.

The Electricity Problem

Electricity demand in the United States was relatively flat for more than 20 years, starting at the turn of the century, thanks to technology advances that improved energy efficiency. However, that has started to change rapidly in the last two years. AI and cloud computing are dramatically increasing electricity demand, and it’s only going to keep rising, says Darden Interim Dean Mike Lenox.

The problem isn’t just limited to finding enough energy supply to meet demand. The growth of data center-driven demand is expected to stretch some electricity transmission and distribution systems to — or past — the breaking point in the near future. Massive electric grid investments will be required to serve data centers, and local communities are increasingly protesting a cost-sharing system that can saddle residents with the cost of grid upgrades needed to serve a large corporation’s data center.

To find ways to responsibly develop data centers without harming the reliable, affordable electricity service communities depend on, stakeholders can embrace new ways to generate power, says Lenox.

U.S. electricity demand is expected to grow 25% by 2030 from 2023 levels. (Source: ICF) Almost all forecast electricity demand growth in the U.S. is attributable to data centers powering AI, cloud computing and other services. (Source: U.S. Department of Energy) llustration by James Gilleard

Lenox believes one viable path forward leads to more reliance on renewable energy sources. The majority of new generation added to the electric grid in recent years has been solar, wind and battery storage systems. Even in the current policy environment, Lenox says, the economics of renewables are strong, and battery storage is addressing issues around the inability for renewables to provide energy when, for example, the wind is not blowing or the sun is not shining.

The way forward may include a new business model for utilities — a more distributed electric grid with democratized participation by “prosumers” who both produce and consume electricity, Lenox says. This would be good news for individuals and businesses alike: Utilities orchestrate a system in which community solar, microgrids, and prosumers with rooftop solar and home batteries can buy and sell.

“This is a much more resilient, distributed, networked electrical system,” Lenox says. “All of this would be working in a very coordinated and complex system, which, ironically, will probably require AI solutions to manage.”

A growing number of data centers are also beginning to build or source their own energy from solar farms, wind turbines and natural gas turbines. Some are actively considering options not yet commercially available in the U.S., such as small nuclear reactors.

In 2001, DigiPlex chose Norway for its first data center in large part because of abundant hydroelectric potential. Early on, few cared that its data centers ran on 100% sustainable energy, Murphy says, but it was 30 or 40 percent less expensive to power than with fossil fuels. Word spread.

With today’s 100- to 500-megawatt centers, he says, companies can realize billions in savings over time and support corporate sustainability goals at the same time.

“My point is, you can do very well while you also do a lot of good,” he says.

The Water Problem

Water use in the United States has actually decreased since 1975, says Professor Peter Debaere, an expert in water economics. In general, water is being used much more productively, he says.

However, water issues are local. Data centers have recently been linked to water shortages and quality issues in places like Newton County, Georgia, and Goose Creek, South Carolina. In dry western states, agriculture is by far the largest water user, but data center growth in hubs like Phoenix, Arizona, and Southern California is adding stress to an already challenging situation. Debaere notes that data center water use will create more value per gallon used than many agricultural uses of limited value, so the conversation about water’s best uses is a complicated one, but the bottom line is still new demand for an already limited resource in the desert.

Large data centers can use up to 5 million gallons per day, depending on the cooling technology they withdraw, according to the Environmental and Energy Study Institute. What’s more, the latest high-power chips being developed for AI use cases require liquid cooling systems, which means data center water withdrawal could surge in the coming years. While much of this water can be preserved in closed-loop systems or returned to water sources through open-loop systems, the reality is that many data centers purchase water from public utilities and allow it to evaporate into the atmosphere after use.

Debaere urges companies to be more transparent about water. Though some data is publicly available, data center companies aren’t required to disclose how much water they use to cool their facilities and equipment.

“Getting data on the actual water use is not so easy,” he says. “But if you want to manage water, you’ve got to know what you can expect — and also, whether there are plans to expand and whether the water use would increase.”

Operators are exploring and using new cooling and energy technologies that conserve water: Closed loop systems continuously recycle and reuse chilled water. Liquid and immersion cooling and gray water systems that use municipally treated wastewater don’t require as much fresh water. Renewable energy sources like solar, wind and batteries also don’t use water, whereas nuclear, natural gas and other steam turbine-based sources of generation do.

Water needs to be more than an afterthought for both the community and the developer, Debaere says. Before a project is greenlit, the right policies need to be ironed out, including cost-sharing agreements for infrastructure upgrades.

“Upfront cost-sharing for specific investments these companies need for their water can be a way of ensuring that, whatever happens in this uncertain environment, communities are not left holding the bag.”

Can Data Centers Be Better Neighbors?

Big tech firms have a responsibility to invest in the communities in which they operate, and this is often folded into their sustainability goals, Mani says. Developers can help innovate new ways of partnering with policymakers, utilities and municipalities to help prevent surprises down the road.

“We can get all of this done. It just requires that initial thought to make this work,” she says.

Data centers are increasingly located throughout the United States, but Northern Virginia remains the largest hub for data centers in the world with many new facilities in the development pipeline. Source: Pew Research

It’s a tall order for the data center operators moving at warp speed in this space, Murphy says. “The pressure is unbelievably intense. There is a first and second-mover advantage, but the sentiment is that if you’re a distant third or fourth mover, you may be out of business.”

However, Murphy believes they don’t have a choice when it comes to aligning interests with communities over the use of resources as critical as electricity and water.

“Change is coming, whether the data center operators embrace it or whether it’s forced upon them,” he says. “There will be those who adapt faster, more efficiently, and thereby offer a more palatable product locally. In turn, by taking into consideration all the stakeholders, they are offering a more viable long-term solution. Those that implement such a delivery model will become the disruptors, and they shall reap their just rewards.”