Solving Power and Water Issues: Mexico’s Geothermal Play

As artificial intelligence accelerates across industries, the global race to build hyperscale and AI-ready data centers has dramatically intensified. Governments and investors are competing for the digital infrastructure that will underpin the next decade of economic growth. Countries that secure reliable, clean, and competitive power for these data centers will lead the emerging AI economy. Those that do not will struggle to capture its value.

Mexico should be a natural contender. Its geographic proximity to the United States, robust fiber backbones, deep pools of engineering talent, and growing cloud economy position the country as an attractive location for hyperscalers and digital infrastructure developers. Yet, Mexico faces two structural challenges that could slow or even deter investment if not addressed: the dominance of the state-owned enterprise in the electricity sector and the worsening crisis of water scarcity. Paradoxically, these very constraints illuminate a path forward, one that could turn Mexico into a global reference for sustainable data center development.

The Power Constraint

Electricity is no longer a secondary input for data centers. It is the defining one. The shift to AI and machine learning is driving computer densities far beyond traditional cloud operations. A single AI training cluster can require the power consumption of a small city. Hyperscalers are now prioritizing locations based not on land availability or labor markets, but on whether they can secure long-term, clean, and firm electricity.

Mexico’s electricity system, however, remains heavily centralized around the Federal Electricity Commission (CFE). This structure creates challenges for new power-intensive users:

• Interconnection Uncertainty: CFE determines the timelines and technical conditions for new loads. For data center developers, uncertainty around whether and when interconnection will be granted is a major investment risk.
• Limited Access to Clean PPAs: Private developers and operators face constraints in securing long-term clean power contracts given evolving regulatory interpretations and the absence of competitive wholesale mechanisms.
• Transmission Bottlenecks: Key regions, such as Queretaro, the Bajío, and Mexico City’s metro area, face congestion that slows or prevents new large-scale connections.

These factors risk turning an otherwise attractive market into one where power uncertainty outweighs geographic and economic advantages.

The Water Constraint

If power is the first constraint, water is quickly becoming the second. Data centers, particularly those using evaporative cooling systems, can require significant water volumes for heat management. In regions with abundant water, this may be manageable. In Mexico, it is a growing national challenge.

Cities like Monterrey, Queretaro, and the broader Centro-Bajío-Occidente corridor have faced severe droughts, groundwater depletion, and increasingly stringent state-level regulations. Communities are understandably cautious about new facilities that may draw on local water supplies already under stress.

The rise of AI only heightens this challenge. High-density chips generate more heat, pushing operators toward more intensive cooling solutions. Without a sustainability-focused strategy, water scarcity could become one of the most binding constraints on Mexico’s ability to scale digital infrastructure.

A Unique Opportunity: Geothermal 

Here is where Mexico has a unique opportunity — one hidden in plain sight. Mexico is one of the world’s top geothermal nations, with an estimated potential exceeding 13GW, yet only less than 1GW developed. Unlike wind and solar, geothermal offers firm, 24/7 renewable electricity, high capacity factors, and a small land footprint. These characteristics perfectly match the needs of AI and cloud operators that cannot rely solely on intermittent resources.

But geothermal’s second advantage is equally important: very low water consumption.

Modern geothermal systems, especially closed-loop or enhanced geothermal systems (EGS), operate with sealed working fluids. Water is circulated and reinjected rather than consumed. With the use of dry cooling, geothermal plants can reduce water use by more than 90% compared to conventional thermal generation. They do not draw from aquifers, do not compete with agricultural use, and do not generate the community conflict that accompanies other industrial water demands.

For hyperscalers seeking reliable, clean and water-efficient power in regions facing drought, geothermal represents one of the most strategic resources Mexico can offer.

From Constraint to Opportunity

To unlock this potential, Mexico could create a special permitting, licensing, and interconnection regime for geothermal projects dedicated to supplying digital infrastructure. Such a framework would send a powerful signal to global investors that Mexico intends to lead — not follow — the next wave of sustainable digital infrastructure development.

This could include:

• Fast-track permitting for geothermal exploration and development, coordinated across SENER, CNE, SEMARNAT, CONAGUA and local authorities.
• Guaranteed interconnection windows for geothermal projects linked to digital infrastructure clusters.
• Long-term clean-firm PPAs, allowing data centers to contract directly with geothermal generators under transparent, regulated terms.

Why It Matters

The United States is facing unprecedented grid congestion and rising energy prices, especially in regions hosting AI expansions. Data center developers are already looking beyond US borders for reliable, clean, and competitive alternatives. Mexico has the opportunity to become the premier nearshore destination for North America’s AI economy if it can provide the power and water sustainability that hyperscalers require.

A geothermal-centered strategy would:

• Enhance grid reliability with clean, firm baseload power
• Reduce water conflict and bolster community support
• Attract long-term, high-value foreign direct investment
• Position Mexico as a global model for sustainable digital infrastructure
• Stimulate regional development through digital and industrial clusters

Mexico’s Decision Point

The global race for data centers is underway, and North America is at its epicenter. Mexico must decide whether it will be a passive observer or a strategic leader. By leveraging geothermal — its cleanest, firmest, and most water-efficient renewable resource — Mexico can turn today’s constraints into tomorrow’s advantage. The question now is whether the country will design the policy architecture needed to unlock this potential.