Why do cloud titans keep building datacenters in America's hottest city?

100 days over 100F and historic drought don't faze Microsoft or Google

With more than a hundred 100F (37.7C) days a year and a persistent drought, on paper Phoenix, Arizona is one of the last places you'd expect to find cloud and colocation providers setting down roots.

Yet, Google has just broken ground on a $1 billion, 750,000 square feet datacenter campus in Mesa, east of Phoenix and to the west in Goodyear, Microsoft has a five-datacenter campus under development.

So what gives? Why would two of the largest cloud providers choose to build datacenters — facilities that require copious amounts of land, power, and a huge amount of water — in such a hot and arid place?

Say what you will about it being a dry heat, but there's a lot going for the region, according to Omdia analyst Alan Howard who tracks the datacenter market and also happens to live in Phoenix.

What a datacenter needs

Datacenters exist to make money, either by hosting servers in the case of a colo or on-prem facilities or the workloads services themselves in the case of the cloud, and this means a confluence of factors need to align for a location to be economical.

Of course, we can't talk about construction without touching property cost and tax incentives. As a general rule, datacenter operators like to build where land, operational costs, and taxes are low.

A state bill signed into law in early 2021, extended tax breaks on the use, installation, assembly, repair or maintenance of datacenter equipment, for most Arizona datacenter valued in excess of $25 million through 2033. However, cheap land and favorable tax incentives aren't the only thing cloud providers are looking for.

"The tax incentives are clearly appealing… but Arizona isn't the only state that offers those kinds of tax incentives," Howard said.

Access to power is another important factor. When you consider a cloud datacenter campus might be rated for north of 60 megawatts, saving a fraction of a cent could translate into millions in savings a year. And while at $0.078 a kilowatt-hour, Phoenix's power isn't as cheap as Washington State, which is closer to $0.04 a kWh, but it's still competitive, Howard said.

Perhaps even more attractive, given the recent emphasis around datacenter sustainability, is where Phoenix gets its power from. The state has a pretty healthy mix of nuclear and sustainable power and is home to the largest nuclear power plant, the Palo Verde Generating Station with a net capacity of 32 million megawatt-hours. And while more than half the region's power still comes from fossil fuels (12 percent coal and 42 percent natural gas), 46 percent comes from other sources.

Of course, all the property, tax incentives, and power you ever want won't do cloud providers much good if it's in the middle of nowhere. Latency is still a factor and cloud providers like to spread their datacenters out to serve broad geographic regions. In the case of the Phoenix, that's the American Southwest, which is home to just shy of a fifth of the US population.

However, proximity won't do much good if you don't have adequate connectivity to support them. "Phoenix has a nice dense east-west fiber that makes connectivity in the region very appealing," Howard explained.

The water problem

The crux, of course, is water.

The city's water supply is located roughly 150 miles away, according to the Salt River Project. Making matters worse, Arizona is in the midst of the worst drought in more than 110 years, and this is a problem for how datacenter operators like to cool their facilities, which involves evaporating lots of water.

As we learned last year, Google's datacenters in The Dalles, Oregon consumed more than a quarter of the city's water supply — 274.5 million gallons or about 1.2 billion liters —  in 2021.

This is usually done using evaporative coolers, which work by passing hot air through what's essentially a large, damp sponge. As the water evaporates it strips away the heat and cools the air. Evaporative coolers are favored because they tend to use a lot less power than alternative means and only need to be run during the hottest months of the year.

But as we reported in April, Microsoft has had to abandon the technology at its upcoming datacenters in Goodyear, Arizona in favor of a more water conscious option. But while the software giant pitched the change as a sustainability win, the reality was that the company's existing datacenters were already putting a strain on the local wastewater plant. The part Microsoft didn't mention was that alternative cooling methods tend to use quite a bit more power and will need to run year round.

We're told that Google's new datacenter in Mesa will follow suit, with a company spokesperson telling The Register that the facility won't rely on evaporative coolers and therefore should have a negligible impact on local water supplies. ®

More about


Send us news

Other stories you might like