[00:00:00] Speaker A: Data center companies actually spend millions of dollars upgrading local utility infrastructure to handle their new water demands, whether it's increasing capacity of wastewater treatment system, adding pipes to the distribution network. So there's lots of different ways that the data center boosts that utility infrastructure.
[00:00:26] Speaker B: I am Reece Tisdal and this is is the future of water which we talk about all the ways which companies, utilities and people addressing the challenges and opportunities in water.
This is episode 120. That's a one two zero and as always I have a good feeling it's because this is going to be a great one. Today I'm joined by Bluefield Research's senior analyst Amber Walsh who's been seemingly up to her years in water for high tech forecasts, competitive analysis and project insights recently. And so while multitasking, her latest research zeros in on surging water demands for semiconductor fabs and data centers. These are two industries that are quietly, I don't, I wouldn't even say quietly. I would say they're reshaping infrastructure strategies from the ground up, including water, water supplies, water treatment, processed water treatment as well as discharges. But in this conversation with Amber, we're going to unpack a couple things. We're going to unpack the growing reliance of ultrapure water and advanced reuse systems to support the requirements for semiconductor manufacturing.
How the rise of AI is intensifying thermal loads, forcing data sitters to adopt more water intensive cooling technologies and driving new investment in water management.
Then lastly, but not exclusively, I shouldn't say lastly, we're going to talk about the emergence of water as a service models and utility partnerships as firms like Intel, Microsoft, AWS rethink how they finance, operate and using the big word future proof their water infrastructure. But before we get to Amber, you're going to have to bear with me just a little bit because something caught my eye this past week, I.e. swedish private equity firm EQT just announced the acquisition of Seven Seas Water Group from Morgan Stanley Infrastructure.
So on the surface it seems like it's another infrastructure M and a deal. But this one says a lot about where capital is going and how the water sector is evolving, I guess beneath the radar. And Seven Seas stands out to me because when I founded the company and we were looking at markets like Caribbean Desal and we've been looking at it since, but I remember looking at Seven Seas. How do they compare to Consolidated Water and what their strategy is or was and how it's changed over time. So Seven Seas is a Tampa and Houston based two headquarters Go figure. It's a two headquartered company that builds, owns and operates more than, according to their records, 220 water and wastewater plants across the U.S. caribbean and Latin America.
Their model is full service outsourced infrastructure, what they call water as a service. So with long term public private partnerships in the Caribbean islands as well as modular, often containerized systems. So why does this deal matter? Well, Seven Seas generated about, according to our records, about $175 million in 2024 revenue. That's 68% of which came from bulk water sales under long term service contracts. This is not equipment sales, but this reflects the pivot in their case towards recurring capex light models that shift delivery and operational risk off the customer's balance sheet.
The company has also landed two public private water projects in Texas relatively recently.
2.7 million gallon per day brackets. D cell plant in Alice, Texas and another 3 million gallon per day system for South Texas Water Authority. These kinds of partnerships say they're rare, They're. Well, they're definitely not frequent in the U.S. but they certainly could become more common as cities seek to mitigate cost, delivery and I guess ESG risk. Broadly speaking, just operational risk to their customers.
Investors seem to be looking for more stable, distributed and essential positions. So EQTs, investment thesis liens and resilience decentralized systems essential services.
Look no further than the SAR Group which is is invested in. I know EQT did divest about 50% of its stake in the SAR Group, but SAR Group posted about 2.3 billion euros in 2024 revenue with standout growth in industrial and international water divisions.
It also expanded its US footprint through the acquisition of natural systems utilities specialized in decentralized reuse, primarily for commercial and or industrial. It's really not a municipal way, really commercial more than anything. So Seven Seas fits well into this strategic lane.
So it'll be interesting if they bring these two together and or how they do it. So modular privately financed infrastructure with embedded O and M and asset control seems to be a thing for eqt and that's where it's heading. So that's what's caught my eye this past week. So let's get to Amber and talk a little bit about water for high tech industries.
All right, so I'm joined here by Amber Walsh. Amber, how goes it?
[00:05:46] Speaker A: Good, how are you?
[00:05:47] Speaker B: You're not going to tell the truth, are you? Before we got on the call you said you're under the weather and everybody's under the weather.
[00:05:53] Speaker A: Yeah, Feeling a little sick. But we'll stay positive.
[00:05:56] Speaker B: Okay, all right, I like that. So the deal is, as I've said explained in the intro, is that there's a lot of activity happening in what we're calling high tech, high tech sectors. So that would be data centers and semiconductors in particular.
When you look at even I think I put something on LinkedIn just the other day looking at industrial production in the US versus semiconductor production, how it's changed over time.
High tech is booming. There's a lot of buzz around it and it's. I want, I don't want to say out of control. It's kind of a. And it's an exciting space. So what's driving all the attention in these industries in particular? Give us a little bit of a background.
[00:06:40] Speaker A: Yeah, definitely. So the expansion of, and as you touched on the demand for more advanced computing, your digital applications, AI, we see a lot. It's really driving substantial growth in both semiconductors and data centers. And with this growth we have this big wave of capital deployment. So billions and billions of dollars. And that's really created this buzz as he framed it then what's relevant here for us at Bluefield is the water component. So data centers, they use water for cooling, semiconductors, they use water in the manufacturing process. We hear of that ultra pure water that they use for cool cleaning the chips.
So that water use piece of it creates a large local impact and that can often get picked up in the news. So we see it a lot in headlines as these facilities can use millions and millions of gallons per day. Micron. They're building fabs in New York and there was a study, an environmental study done and it's saying that at full build out in a couple decades they could be using upwards of 48 million gallons of water per day. So that's a big impact there on the local community and the water resources.
So there are clear market drivers pushing these industries to the forefront of discussions.
That water piece, it's really bringing these industries into the news and then it's also creating this pressure from the public to improve their water use and be quote, good stewards.
So that's pushing for innovative solutions for water management that we'll discuss here on the podcast today.
[00:08:30] Speaker B: Yeah, so there's no doubt we're getting a lot of questions from clients and I should say you, I don't think it's hit the street yet. It's imminent. Where you have got a report on data centers, water management across data centers, market trends, forecasts, et cetera, that's about to hit the street. And then you've also done some other analysis on a recent deal that Veolia made in, in terms of semiconductors. But so those are, you know, the semiconductor fabs and data centers, they both use a lot of water, right? For cooling primarily and ultra pure water for the fabs. So is there anything else driving investment in this space apart from just the demand side growth for their services or products?
[00:09:15] Speaker A: Yes. So if we look at semiconductors, we've talked about the US Chips act before on the podcast, but it continues to be relevant as we look at the space.
So the goal of reshoring semiconductor manufacturing, We've seen over 28 billion in federal grants be in that final award funding stage. So it's hitting the streets and these projects are getting off the ground. TSMC, they reported they started production in their Arizona Fab Q4 of 2024.
So as these dollars are, are hitting the projects, we see construction timelines work out.
[00:09:57] Speaker B: I mean it is interesting to see there are companies like TSMC you mentioned intel is another one and there's been some back and forth in terms of them or it how successful they're going to be. And then Samsung, I think that's some of the analysis you also have coming out. It's like what are the timelines for certain projects? Because some have been delayed and I assume part of that is because of policies, uncertainty, internal issues. Anything specifically that you can think of?
[00:10:30] Speaker A: Yeah, definitely. So there was concerns over the time that it took for this grant funding to roll out.
There have also been, I think in the research note that's coming out, we call it winners of the market. Tsmc, they're really effective at producing these advanced chips whereas other companies like intel, they've really positioned themselves in the more traditional chip markets.
So trying to find the balance between market demand, what's going on within the company and aligning the grant funding has caused delays for these, these projects. Samsung's another one that they've had comments about their production yields of these advanced chips and that's causing potential delays in their Texas facility.
So you have these billion dollar projects and along with that you have these water contracts and their opportunities there. But they are a little more slow moving and they're dealing with some hurdles.
[00:11:36] Speaker B: Okay. Yeah, no, they are. They're big and I think we've talked about it in different forecast scenarios about what does that curve look like going forward. Is it going to be a big ramp up and then it'll slow down or tail off, not disappear. But let's change gears A little bit. Let's look at data centers and let's talk about what's happening in this space because it is altogether different from semiconductors. But there's a lot of activity, a lot of news. It seems to be every day, whether it's because of AI, etc. Give us a quick overview of what's happening with data centers in terms of water management, the cloud, AI expansions and so on.
[00:12:14] Speaker A: Yeah, I'll try to keep it short and concise. I love talking about data centers. I think there's a lot of innovative technology being deployed. These big tech companies are doing some, some interesting projects.
So this growth is really a rise of AI there. Also during COVID there's increased data processing and storage needs. So there was already this buildup and then the explosion of AI really boosted these companies looking at building out their assets, deploying more data centers. So we're really seeing rapid growth. The U.S. census Bureau earlier this year, I believe they reported in January, data center construction put in place was just under $3 billion. Just for January alone. I think it was 2.7 billion or something like that.
So lots of dollars. And then in the report we look at 50 key project announcements. So what's going, what's on the horizon for these larger data center companies?
And they have over $100 billion in investment.
And some of these data centers, they're being built in water stressed regions of the U.S.
like Arizona, we see some in Texas. So definitely that water component is key here too.
[00:13:35] Speaker B: Yeah. And I think their names that you're seeing, I mean the obvious ones are Microsoft aws, Meta and Google. But there are also others that are interesting that I think you've brought up. And definitely in the analysis like Digital Realty or Coresight qts, these are, you call them colocation providers. Right. So I don't know if we get into this, but difference between colocation versus on site, is that how you would break it out?
[00:14:04] Speaker A: Yeah. So we look at the hyperscalers. So the ones offering cloud solutions they have, they own and operate their own facilities, whereas the colocation providers, they lease out their server space. But both are key players, key buckets of the market and they're both driving growth. We see a lot in the news, the big tech, so your Microsoft aws, but Digital Realty, they also have lots of expansion going on because they're having low vacancy rates. So they don't have a lot of room at their current data centers to lease out space. So they're having to build new data centers to meet that demand.
[00:14:47] Speaker B: Okay, yeah. So it's interesting. And the reason I bring that up and call out these names is companies, clients come to us to say who's building what, where are they building it, how are they building it. And one key aspect is, well, you know, knowing who the players are in the market, it's not just what we would call or have named big Tech. There are a host of other companies that actually own the facilities in the assets and they're just leasing out space. So since we talk about water, what makes this interesting from a, from a water point of view?
[00:15:20] Speaker A: Yeah, definitely. So they have, they use a lot of water for cooling, but because of this pressure that communities, the news has put on them, they're setting these net water positive goals, a lot of them by the end of the decade. So they're coming up and that's really pushed these companies to look towards innovative solutions.
A common strategy that's adopted at more legacy sites or also aws, their big strategy is using reclaimed water from the municipality. So they'll have a purple pipe network and they'll connect that reclaimed water to their data center and use that for cooling. Another example is Microsoft. They're looking to deploy zero water data centers in I believe Arizona is going to be one of the first ones where they roll this out. So they're saving substantial water. They, they fill up the system at construction and then they are able in a closed loop to, to reuse that water.
[00:16:23] Speaker B: So what we're talking about billions of dollars capex here or at least investments. And so as these new data centers come online, what does it look like going forward from a water, you're talking about different types of cooling, different kinds of zero water systems. What does it look like? What are you seeing as far as the market outlook?
[00:16:44] Speaker A: Yeah, I'll preface this by saying we've had a lot of conversations with data center companies and there's definitely diversity in the answers of what that water outlook looks like over the next five, 10 years. But we piece together some key trends that we're seeing to forecast what's that water outlook look like. So one key thing that we've seen is that companies are reducing their water use intensities.
So Meta, aws, Microsoft, they've all seen declines in their water use intensity over the past 3, 4, 5 years by drastic measures, I think meta, their intensity has gone down by 40%, AWS around 30% because they're investing in more on site improvement projects. You have metering, leak detection as well as more innovative cooling technologies.
But at the same time their water use still is rising.
Meta, for example, their water use from 2020 to 2023 jumped about 12% compound annual growth rate.
So we're seeing lower use intensities. But because build out is so large, it's pushing for that continued growth of water use.
So that's one piece we're seeing.
Another piece we're seeing is the use of more efficient cooling. With AI and more advanced computing you need higher density servers which requires more liquid cooling. So that's more direct to chip or immersion cooling that is actually more efficient. That can drive down your water use a bit as well.
Then lastly we see this trend.
Water free cooling systems.
Qts, a colocation provider, they're expanding their water free cooling believe they had nine data centers with water free cooling systems. Now it's up to about 16.
Putting all these different pieces together, we still expect that the outlook for water use to rise through the end of the decade, however, we think it's going to be slower than the previous decade.
Our forecast model projects a little under 9% compound annual growth rate of water use through the end of the decade where it was closer to 13, 14% for this previous decade.
[00:19:10] Speaker B: I mean, one thing that's interesting, so there's a great trend. So you're seeing, you know, they're reducing their water usage at least on site. Right. Some of these companies that you mentioned matter aws, that's on site. But in aggregate they're using more water because they're building out more data centers. Right. So it's still, it seems to be they're still on a net basis. If I'm thinking through this, they're still down in their, you know, water usage. Right.
And then the other thing is if they're using zero cooling, you didn't mention dry cooling. Is that included in the trend or not? Because one of the things that I think we've talked about is if these data center providers go to dry cooling or just use less water, are they just deferring or what's the right word, passing that water usage off to the power utility. And then because of the power demand needed to run these data centers, the water footprint actually shifts from data centers to the power sector. Is that the case, what we're seeing here?
[00:20:20] Speaker A: Yeah, that's definitely an important piece of the conversation. So this forecast looks solely at what are these data centers using water wise on site. But the important but indirect water use is from that power side of it. So if we include power in the mix, your water footprint gets much larger. When you're looking at these data centers.
[00:20:42] Speaker B: Yeah, because they have to be cooled. And I think that's the other side of the discussion. And that is, you know, how much power do these things need? And that's why, whether we're deferring coal plants, there are decommissioning of coal plants, should I say, or even talking about bringing back nuclear, it's partly to support this spike, tripling or quadrupling of power demand to support data centers and AI as a whole. So. Well, let's talk about it from a market opportunity perspective. What's the market size? You talked a little bit about growth, but where's the water related spin happening in addition to just the market size overall?
[00:21:24] Speaker A: Definitely. So if we look at the market sizing over the forecast period, which was 2025 to 2030, it is about 4.1 billion.
So significant spend. We see this spend growing at about 8% compound annual growth rate. And the key thing to point out here is that CapEx really dominates this near term spend, accounting for a little under 60% of the total.
And we break this out into pretreatment systems, on site water equipment and municipal related infrastructure.
Data center companies actually spend millions of dollars upgrading local utility infrastructure to handle their new water demands, whether it's increasing capacity of wastewater treatment system, adding pipes to the distribution network. So there's lots of different ways that the data center boosts that utility infrastructure.
[00:22:20] Speaker B: All right, so I know you love this stuff because you've been living it for the past couple months and the way you talk about it is exciting. So last question on data centers, then we transition back to our two semiconductors and that is what's in. Is there anything else has jumped out at you that's interesting in terms of data centers and water management?
[00:22:40] Speaker A: Definitely. So the partnership with the utility, as I just mentioned, I think it's an important point to call out. There's some innovative things happening at the relationship between that data center company and utility. So the private sector meeting the public sector in many cases.
So one example is that use of reclaimed water, aws. Their strategy is largely targeting reclaimed water, I think Loudoun county in Virginia. So they're one of the largest hotspots for data centers and they move about 800 million gallons per year of reclaimed water to data centers.
So that supports AWS stack infrastructure and a bunch of others.
And then another key point about that relationship between the data center and the utility is there's been some cool business models that have come of it. Some startups have really Benefited.
So Fido Tech we've talked about a couple of times, but they have a model that allows that data center to fund leak detection for the local utility and they count that water savings towards their water sustainability goals. Google is also doing some innovative work with smart irrigation, so they're trying to look at alternative ways off site to reduce that community water use.
[00:24:09] Speaker B: Yeah, I think, I don't. These strategies are growing on me a little bit. I'm not going to lie. In the early days I was like, wait a second. Or we just push, paper pushing, but for some reason, whether it's being, whether it's more projects or greater uptake of these agreements that we're seeing, and it's not just the US but it's around the world, like the Fido Tech one. It's super interesting, right? We have these communities that have infrastructure shortcomings or problems that need to be addressed. Data center companies want to come into, they come into town and so they sort of, in a way kind of make a trade, right? We want to build a data center, but we can also make you more efficient. We can help reduce your leakage, we can help upgrade your existing system so you have less problems. So I think it's super interesting and you know, it'll be interesting to see how that rolls out going forward.
Will it be a greater scale? This is something actually a big tech company, we had long conversations about, kind of revolved around the role of a water reuse or water investment tax credit. Right. You know, the solar industry, wind industry, renewables, they received these tax credits to, you know, invest in these renewable systems. And they get, whether it be 10%, 30% depending production tax credit.
Is there something that the industry can do? I mean, these cities and towns, it's not unique in many respects. They need capital, they need to upgrade their infrastructure.
And there are these companies that I think seem to be willing to do it right, but they also have a need. So is it a win win situation where they can invest in, like I already said, leakage, new pipe distribution or collection systems, can it benefit the community as a whole? So I love it. So let's see if we can run through semiconductors. I know we started out a little bit on semiconductors, but let's give us a rundown what's happening in the market, what's interesting. I, I think I already mentioned Veoli, but give us some more detail, what gets you excited there.
[00:26:23] Speaker A: Definitely. So we've been following the CHIPS act and where the funding's going, these large projects, the timelines delays. So what's going on there?
Something interesting that we've seen is Veolia securing these large contracts with semiconductor fabs. So most recently There was a $550 million contract, 16 years design, build and operate for an undisclosed Midwest fab. They aren't publicly disclosing the name of the client, but based on the size of the contract location we suspect it could be Intel. But that has not been verified.
[00:27:05] Speaker B: Come on, I'll take blame for it. It seems to line up perfectly with Intel.
[00:27:10] Speaker A: Yes, if we had to bet on it, I would probably go Intel.
And so what's interesting about the design is they're really investing in reuse. So they're going to reuse over 2 million gallons per day. And then building on that there is cii, so climate infrastructure.
They have a partnership with Veolia and so they're a infrastructure investment firm and they're fronting the capital for that reuse facility. So 66 million and they're funding that. The semiconductor company, undisclosed semiconductor company will pay this back through a water as a service model. So it really shifts that cost from CapEx to OpEx.
And the business model here is interesting and it makes CAI on the hook for the risk of the system, the capital.
But that shift to OPEX is interesting and we see that in other verticals as well, how they're trying to offload the capital and put it more into that OPEX budget. And then on that broader note, we talked a little bit or I mentioned that there was risk CII would be on the hook for the rest of the system due to the changing market conditions. We talked about the advanced chips versus your more traditional chips. We do see the project delays associated with these facilities.
So that does create some type of risk for the water contract or the water solution providers that are working on these facilities.
And it kind of fits that a large company like Veolia would work on these, these fabs. They also have a contract with Samsung in their Texas facility. That one is about 177 million. It's a little shorter term. It's a two year contract for their water management system.
So yeah, Veolia, they're a big company. They're able to kind of adapt with these, these changing timelines a bit better than a company that is relying solely on one or two contract wins.
[00:29:25] Speaker B: Yeah, no doubt Violi is there. It's a whale hunter, right. They're looking for big gold plated projects and these semiconductor fabs are definitely that.
And yeah, there is risk. I mean if you Read the news. You hear about what's happening with intel where you know there are questions about the CHIPS act, the questions about what's coming out of Washington, what does it mean for all the funding. But you said that I think 28 billion had been awarded.
And is that what's the total? 28 out of what? Through the Chips act and the act.
[00:29:58] Speaker A: It allocated 39 billion for manufacturing.
[00:30:03] Speaker B: Yeah. So it seems like things are rolling despite some delays in the case of Samsung or Intel or a couple others. But to wrap up, let's talk a little bit about sort of opportunities for high tech and what should investors, utilities, vendors be watching? What, what signals are out there should they be looking for as we go forward?
[00:30:24] Speaker A: Yeah, so I'm more on the the positive side. I always like to look at the opportunity. I'm excited to talk about this. But it is important when we're looking at these, these high tech industries to look at the risk that these projects have. We had mentioned with the semiconductors, Intel, Samsung, so the water contractors, they need to be aware of pushback timelines. But even on the data center side, Microsoft recently announced that it was pausing its build out of its Ohio data center and they're looking to assess the market demand compared to their asset build out. And what's the actual AI adoption, what's the play look like and what does that mean for different technology adoptions? So as the market's shifting pretty rapidly, they're looking to see if their asset build out strategy aligns with what's actually going on in the market.
So that's one thing. Another piece that's interesting is the business model. So mentioned that CAI is funding a water as a service model.
That's always an interesting piece to look at. How are these industrial players financing these big projects here they're moving that capex to OPEX and paying on a per unit used model.
We really see this gaining traction.
There's a couple other examples of that.
And then lastly I'll mention is this ESG component and companies really looking at that sustainability piece but adding some digital innovation to it?
So there's digital realty in Ecolab, they're partnering to deploy an AI based water optimization tool in 35 US data centers.
So different innovative solutions like that, it's interesting to see kind of that using innovation and technology to meet those sustainability targets.
[00:32:41] Speaker B: Yeah, I think the growth in this sector has been tremendous and it will be interesting to see how another aspect is just the role of modular treatment rental models. Rental.
Can you just park a package system next to a data center. And that's really the treatment system. I think that's one aspect of it. And we've talked about this, I think on this podcast we've definitely talked about it. And that's the role of companies like Ecolab that are, you know, providing services and their financials. I haven't seen this Q1 2025, but last year their financials were very strong in the high tech sector, which is just indicative of everything we've talked about today. So.
All right, well, with that being said, Amber, now you're going to have to you've got a lot off your coming off your plate and then I guess we'll continue digging into this more. Anything else happening research wise that you're working on?
[00:33:40] Speaker A: Yeah, Plug. The US Data center report will be out shortly. There's a semiconductor research note on that Veolia contract coming out the quarterly and then on to the next Insight report.
[00:33:55] Speaker B: Nice. I like it. All right, well, Amber, I talk about being positive. I can't, you know, you're on on death's Door when we started this. So thanks for putting on a good face and good voice for the listeners and appreciate the time.
[00:34:11] Speaker A: Thanks for having me on.
[00:34:12] Speaker B: Ok.
All right, that's it for today's breakdown. I'm sorry, probably too much information, but yeah, she's definitely muscling this one out. So thanks to Amber for putting in the time and effort as she fights off whatever illness is going around the world these days because I've got a number of colleagues who are down for the count. But she stepped up. So if you want more intelligence like this, head over to bluefieldresearch.com I am Rhys Tisdall and I'll catch you next time as we keep watching the water sector one signal at a time. So thanks for being part of the journey. But as always, before we sign off and I don't say this enough, I want to once again thank all the people involved in making this and other conversations on the Future Water podcast happen.
These include Mike Gaylor, Ryan Sullivan, Kelly Talbot, Steph Aldock.
I said before, I said this last time, I would be talking to myself if it weren't for them. So if you run into them at ACE at the water conference coming up in a couple weeks in Denver, Colorado, reach out and say hi. Some of them will be there. I know Steph Aldock will be. If you're in Boston, Barcelona, New York, Chicago, San Francisco, Paris, let us know. We'd enjoy the opportunity for a meeting because that's where we are.
Send us a Note to water expertsluefieldresearch.com with any topic ideas you'd like us to discuss. And lastly, tell a friend about it.
This podcast, these water industry insights have been brought to you by the one and only Bluefield Research. To learn more about us, Visit
[email protected] Till we talk again. Be well, be safe, and take care.
