The Hidden Cost of Cooling: Why Energy Efficiency Now Dictates Data Center Site Selection

Data centers are expanding at an unprecedented rate to meet global demand for cloud, streaming, and artificial intelligence. But as servers multiply, so does the cost of keeping them cool.

Cooling systems now account for up to 40 percent of a facility’s total electricity use, making them one of the most expensive and environmentally sensitive factors in operations. In many regions, the cost of energy dedicated to cooling rivals the cost of powering the servers themselves.

Location, Location, Location

The days of building data centers anywhere with cheap land and fiber access are fading. Operators now consider local climate, water availability, and grid sustainability before breaking ground.

Cooler northern climates, where “free cooling” with outside air is possible for much of the year, reduce the need for costly mechanical systems. In hot, arid regions, however, the reliance on water-cooled chillers drives up both operational costs and community tensions.

The link between site selection and sustainability is growing stronger. A facility built in a temperate climate can cut cooling-related energy consumption by as much as 30 percent compared with one in a desert environment.

For hyperscale operators, that difference can translate into millions in annual savings while improving public perception in regions already facing water scarcity.

The Numbers Behind the Decisions

Industry analysts estimate that the average data center consumes enough electricity each year to power 50,000 homes, with nearly half of that tied to cooling.

A single megawatt of data center capacity can draw more than 4 million kilowatt-hours annually just for temperature control. This economic burden is prompting companies to rethink where and how they grow.

The global market for liquid and immersion cooling is forecast to surpass $20 billion by the early 2030s, fueled by the need to manage higher rack densities driven by artificial intelligence. But for many operators, choosing the right location still offers the fastest and most cost-effective path to efficiency.

Voices From the Field

“Energy costs are now as important as network latency in determining where a data center is built,” said Susan McAllister, a senior analyst specializing in data center infrastructure. “Cooling is no longer a secondary consideration — it’s often the dealbreaker.”

Operators echo that sentiment. “A one percent improvement in power usage effectiveness can translate into millions of dollars in savings,” said Rahul Banerjee, a chief engineer for a hyperscale provider. “When you multiply that across dozens of sites, location decisions become financial imperatives.”

Looking Ahead

As operators push toward 2030 net-zero commitments, the economics of cooling will only sharpen. With rising energy prices, growing regulatory scrutiny, and increased community resistance to high water usage, site selection is becoming as much about sustainability as it is about connectivity.

The future of data centers will be defined not just by where the internet flows fastest, but by where the air and water can cool servers at the lowest cost — and with the smallest environmental footprint.