Charting a water and energy resilient future for digital infrastructure in the Indo-Pacific
Data centers are driving billions in investment and the Indo-Pacific region stands at a critical inflection point. Rising use of cloud computing and AI are creating demand for a massive expansion of data centres around the world.
The statistics are staggering. In 2025, annual capital investment in data centers rose nearly 60% globally, and in the Asia Pacific region data centers became the second most attractive asset class. By the end of the decade, data centers are projected to double in number and triple in capacity, attracting annual investment that could exceed 3 trillion USD (Barringa 2025). With the explosive growth in demand, speed to market has been king, leading to clustering of data centers in areas already able to provide land, network connections and power agreements – often located near urban areas.
The pace and scale of construction is raising concerns over their long-term impacts on local resources and communities as the boom is accelerating fast beyond previous projections. As nations compete to attract such investment, a pressing question emerges: can the region's infrastructure, regulatory frameworks, and natural resources support this digital transformation without compromising the water and energy security of its residents and industries?
The emergence of artificial intelligence is dramatically impacting all levels of society – from the economy and job markets to individuals’ social and professional lives. Rapid construction of data centers are also changing the physical landscape and bringing with it large new sources of demand for water, energy and land. Data centers have come about as essential infrastructure that provide economically valuable services. This infrastructure, however, does not serve the communities where it is located. Instead, the primary potential benefits are almost entirely economic. The majority of job creation and economic flows provided to a local economy comes during the construction phase to build them. Without sound planning, this can essentially provide quick gains in the short term at a trade-off with longer term commitments to provide land, energy and water resources to sustain them.
The scale of growth
Data centers need land, energy and cooling systems to operate. They use considerable quantities of electricity together with water for cooling to keep them running. The International Energy Agency estimates that in 2024, data centers accounted for 1.5% of the growth in global electricity demand and projected this to rise to 3-5% by 2030 (IEA 2025). It is one of several factors driving growth in electricity demand, alongside air conditioning, electric vehicles and non-heavy industry. Data centers create concentrated demand for both power and water and that can pose significant strain and challenges to the power grid and water resources. To date, they are often clustered near urban areas so that they can connect to and securely access existing energy and water infrastructure.
A critical challenge to assessing future data center water and energy demand is the number of variables currently involved in the equation, including:
Size, scale and number of data centers being constructed
Types of technology used for .e.g cooling
Existing energy mix in local area
At a global level, projections on the number and capacity of data centers that will be built over the next decade and beyond are highly uncertain as the acceleration of AI applications are by nature not easy to predict. Competition is emerging between residential, industrial, agricultural, and digital infrastructure demands for water and energy: a cause for concern by some of the largest actors in the field. The biggest data center builders in the US and China are investing in pilots to create them in space where they access solar radiation for energy and have no need for liquid cooling. Even as a contingency, the potential limitations are enough of a threat for the industry to consider options from under the ocean to Earth’s inner orbit. Part of this equation is uncertainty over the possible growth trajectories for AI and cloud computing applications in the future.
Most use municipal water sources for wet cooling systems. Cooling systems that require less water (like dry or air cooling) are generally more energy intensive, which increases costs for operators. – While dry cooling heavily reduces on site water use, it increases energy consumption by 20-40% (Barringa 2025) and is not always viable with higher demand applications like AI, which generate more heat and require liquid cooling. It is also not just the data centers themselves that demand water for cooling – most energy systems used by data centers (thermal power from nuclear, natural gas or coal; or hydropower) require water too. For example, a recent study showed water demand for energy use by data centers in Arizona, USA was potentially 200-400% greater than the direct water demand used for cooling (Ceres 2025).
It is also commonly contended that the full energy, water, land and resource demands of data centers are currently not being fully disclosed and may be underestimated. Total water and energy demand are also interlinked, impacted by technologies chosen and can involve trade-offs between resources.
The Indo-Pacific Context
While the densest growth of data centers has been in the US and China, countries across Asia-Pacific are positioning themselves to catch the next wave. Japan has the highest proportion of energy use for data centers, with more than half of future electricity demand coming from new data centers. There is considerable enthusiasm for the idea that expansion of digital infrastructure will rapidly spread across the region. The region is home to many of the most densely populated areas in the world as well as 60 percent of the global population. Development across sectors will require water, energy and land resources which need to be considered alongside the expansion of digital infrastructure.
Fueled by $800 billion in investment capital, Asia-Pacific region's data center capacity is projected to more than double in the coming five years, increasing from 12.5 to between 24-30 GW by 2030 and account for 40% of the global total. Much of this growth will come from emerging markets such as Malaysia, Indonesia, India and Thailand, supported by growing digital economies and government incentives. Building this pipeline requires massive capital – industry estimates sit at around $50 billion for these four markets alone (SP Global 2025). As developers focus on access to reliable energy grids, they often cluster near major population centers where investments in energy infrastructure have been historically greater. For example, many of the major regions for data center growth in emerging markets, such as Bangkok, Jakarta, Mumbai, Chennai and Hyderabad, face a myriad of water scarcity challenges even before adding significant water demand for new data centers.
The Infrastructure Challenge
New and future developments may be able to continually benefit from innovations, improved practices and technologies to improve water and energy efficiency and reuse. They may also be able to benefit from lessons learned from utilities, state, local and national governments to improve management of water and energy demand and reduce risks for environmental impacts that negatively impact local communities surrounding new data center developments. As infrastructure is developed quickly, it is critical that local communities do not take on long-term risks to attract short-term economic investments.
Enforcing standards for water use and power use efficiency is a baseline requirement. While many countries in the region are looking to position themselves as digital hubs (Singapore, Indonesia, Malaysia, Thailand, Vietnam), most do not yet enforce standards and requirements for Water Use Efficiency (WUE), and some lack requirements for power use efficiency (PUE). A sole focus on WUE and PUE is not enough. Public authorities must have a clear assessment of allocations that can be made between users, including data centers that can maintain resilience under different climate outcomes. This can help driving siting decisions and planning decisions. In Malaysia, 80% of data center development is concentrated in Johor, the government has already been forced to mandate a moratorium on new wet cooling systems for data centers due to seasonal drought and pressures on municipal supplies.
So far, low energy costs has not yet – by itself – been the primary driver providing advantages between countries to attract investment in data centers. Laos, for example, is currently exploring the creation of its first national data center and government data exchange system, but has ambitions to utilize its low-cost energy to attract further data center developments (Xinhua 2025). Several of the ‘hyperscalers’ are looking for data center sites where they can access clean energy to maintain commitments to reach net-zero targets. This can provide an opportunity to add clean energy capacity to the grid, particularly in emerging economies.
Preparing for the future
Utilities need time, resources and sufficient planning windows to determine whether and how they can meet potential water demand from data center developments. Utilities are designed for gradual growth, which makes facing rapid, unexpected, concentrated demand spikes, challenging and potentially risky. Climate change adding unpredictability to water availability and energy reliability - already not resilient before ‘shock’ of data center demands. A recent report from Water Services Association of Australia (WSAA 2025) outlines five key actions that can enable data center development add more value, and reduce risks to local water and energy services and environment impacts:
Engage water (and energy utilities) early, in the feasibility stage of new development applications
Standardize, report and invest in meeting efficiency metrics (PUE and WUE)
Expand and adapt standards to local needs and climate zones and regulate standards for wet cooling systems.
Utilize recycled water, heat capture, and circular technologies for data centers
Ensure added infrastructure and service requirements for data centers do not add costs for other customers
Regions that are planning for data center development must assess the total water and energy demand created across options when approving projects. This may in many cases bolster investment cases is technologies to improve water and energy use efficiency, as well as use of recycled water. While individual companies or data center developers are not responsible for the regional impacts of dense data center networks, they are vulnerable to risks posed to their operations if communities bear impacts to their energy or water services that can occur.
Local utilities and authorities can be faced with the challenge to build capacity to meet much greater energy and water demands and do so on accelerated timelines that are tough to meet. This is particularly challenging for utility operators whose systems are designed to respond to gradual growth. It is also critical that local authorities are able to plan and build resilience to climate impacts. Meeting accelerated demand before building out additional capacity can come at a cost to system resilience.
Getting buy-in
As municipalities look to attract technology companies to invest in their region, offering cheap water may be a lose-lose proposition sooner rather than later. Data center operations bring high economic returns per unit of energy and drop of water used. The value of water and energy provision is not equal to the market price paid by industry or residents nor are the high economic returns necessarily distributed to the local community. Data center operators need to and should pay for resilient, uninterrupted service provision. Alternatively, there can be risks that local and regional demand for energy and water will lead to higher cost services for residents and greater vulnerability to both energy and water shortages. In areas with highest concentration of data centers in the US, there are multiple reported examples of rising costs, impacted water quality and services, as well as greater vulnerability to energy shortages, particularly under extreme weather events.
The Indo-Pacific is at a crossroads. A massive, AI-driven surge in digital infrastructure is unfolding across Southeast Asia, South Asia, and the Pacific, promising immediate opportunities for economic growth. Data center capacity is set to double in three years, attracting enormous capital and positioning these facilities as the region's second most attractive asset class.
Yet, this digital boom rests on a – currently – shaky foundation: the availability of water and energy. Every new data center demands reliable electricity and substantial water for cooling, creating intense pressure on resources that many local communities already struggle to secure. In the tropical climates where cooling needs are highest, a single facility can guzzle the power of tens of thousands of homes and millions of liters of water daily.
As nations compete to become the next digital hub, a fundamental question looms: Can the Indo-Pacific sustain this transformation without undermining the water and energy security of its own people and industries? The region's path forward will determine if its digital future is built on sustainable growth or resource conflict.
This article is published as part of a project between the Australian Water Partnership (AWP) and the Alliance for Global Water Adaptation (AGWA) seeks to equip cities and regions in the Indo-Pacific with the policy frameworks, knowledge, and tools they need to not just survive an AI boom but thrive in it. Read more >
The Australian Water Partnership is supported by the Australian Government and managed by eWater Ltd