Global data center electricity demand surged 17% in 2025, according to the International Energy Agency's April 2026 report. A sprint toward what looks increasingly like a structural crisis, perhaps more than the industry bargained for. Big tech's capital expenditure has surged dramatically, with major players continuing to increase spending on infrastructure. Behind those numbers sits an uncomfortable truth: the AI boom is slamming into the physical limits of power grids and water supplies.
Which brings us to Madrone—a two-person startup out of Y Combinator's Spring 2026 batch that says its dew-point cooling system can slash data center energy and water consumption by roughly 30% compared to conventional chiller-plus-cooling-tower setups in Texas. That's while eliminating mechanical chillers entirely. The company, backed by NVIDIA's Inception program, says it delivers supply water at around 20°C through what it describes as "novel dew-point cooling technology."
If the claim holds up under scrutiny, it represents the kind of efficiency gain the industry desperately needs. But Madrone is hardly alone in chasing this opportunity, and independent validation of its performance remains unpublished as of mid-May 2026. Still, the company's pitch arrives at a moment when data center operators are running out of alternatives.
The Energy Crisis Hitting Data Centers
The trajectory here is blunt. The IEA's base case projects data center electricity consumption will roughly double to approximately 945 TWh by 2030. Goldman Sachs, in a February 2025 analysis, forecast global data center power demand climbing 50% by 2027 versus 2023 levels—potentially spiking as high as 165% by 2030. AI workloads are the primary driver, accounting for 27% of projected 84 GW in 2027 demand, according to Goldman's estimates.
Meanwhile, efficiency gains have stalled. Uptime Institute's 15th annual survey, published in July 2025, showed average Power Usage Effectiveness (PUE) essentially unchanged for the sixth consecutive year. And this even as rack densities climbed into the 10-30 kW range in AI-heavy deployments. The industry is burning more power to do more work, but it's not getting materially more efficient at the facility level.
Water consumption tells a parallel story. The Environmental and Energy Study Institute estimated the U.S. data center sector's indirect water footprint from electricity generation alone at roughly 211 billion gallons in 2023—before accounting for direct on-site cooling water. Microsoft responded in July 2024 by pledging "zero-water evaporation" designs for new builds starting that August, a signal that hyperscalers recognize the political exposure.
The Regulatory Backlash
That exposure crystallized in 2026. Maine became the first U.S. state to enact a statewide moratorium on new data centers above 20 MW, with the temporary ban running through November 1, 2027. The legislation cited concerns about "extraordinary demands on electric infrastructure, the surrounding environment, and host communities." By early May, Tom's Hardware was tracking 50-plus active bans or pauses across U.S. jurisdictions. Cities from Charlotte to Durham, North Carolina, were considering or implementing their own freezes.
The Georgia incident in May 2026 didn't help. A QTS data center in Fayetteville was found to have used an estimated 29-30 million gallons of unmetered water tied to construction and temporary hookups over a disputed timeframe—officials and the company disagreed whether it was four months or closer to nine to fifteen. Retroactive charges totaled roughly $147,000, but the political fallout landed harder than the bill.
Overseas, Ireland's Commission for Regulation of Utilities issued a new Large Energy Users Connection Policy around late 2025—effectively replacing a de facto connection moratorium in the Dublin area with a framework emphasizing renewables and grid criteria. Environmental groups filed a legal challenge in April 2026. The European Commission, meanwhile, published its first aggregated data under the Energy Efficiency Directive in 2025 and 2026, revealing operators had reported 6.4 GW of installed IT power across the EU. Ongoing annual reporting on PUE, water usage, and heat reuse is now mandatory for facilities above 500 kW.
Investors are pushing for more granular disclosure. In April 2026, shareholder proposals intensified pressure on hyperscalers to publish site-specific water and power consumption data—a shift that will make efficiency claims harder to massage at the portfolio level.
How Dew-Point Cooling Works (and Why It Matters)
Dew-point evaporative cooling—specifically indirect evaporative cooling using Maisotsenko-cycle (M-cycle) heat exchangers—operates on a straightforward principle: it can drive product air or water temperatures below the wet-bulb temperature and closer to the ambient dew point. Conventional evaporative coolers stop at wet-bulb. Dew-point systems keep going.
The technical literature, spanning reviews from 2016 through 2025, suggests the approach can achieve 20-30% higher cooling efficiency than standard indirect evaporative coolers. A 2023 trial published in Applied Energy reported approximately 90% energy savings versus legacy vapor-compression air conditioning in an operational data center under specific test conditions—though the authors noted the result was site- and method-specific. More recent work, including a December 2025 study in Applied Thermal Engineering, explored two-stage dew-point designs to push efficiency further.
For water-cooled systems—the kind Madrone appears to be building—M-cycle cooling towers can theoretically supply water below ambient wet-bulb temperature without mechanical chillers. That extends "free cooling" hours in suitable climates. That's the value proposition in places like Texas, where hot, dry conditions create large dew-point swings. If a system can deliver 20°C supply water for enough hours of the year, it can shrink or eliminate the need for energy-intensive chillers and reduce tower evaporation versus conventional setups.
Madrone's founders—Erik Meike, who worked on hardware at Apple and studied at Harvey Mudd, and Akshay Trikha, who came from QuantumScape and did materials machine learning work at Berkeley—are betting that package can compete in a market where liquid cooling adoption is accelerating. Dell'Oro Group projects the liquid cooling manufacturing market will approach $7 billion by 2029. A 451 Research preview from April-May 2026 found 21% of data center operators plan to shift to liquid cooling within the next 12 months, with another 25% eyeing a move in two to four years.
Direct liquid cooling and immersion systems typically require supply water in the 18-30°C range depending on chip design and heat flux. If dew-point air-to-water systems or M-cycle cooling towers can consistently hit that target without chillers—and do so with lower water usage efficiency (WUE) scores than open towers—they slot neatly into the architecture that AI workloads are driving operators to adopt.
The Competitive Landscape
Madrone is entering a crowded field. Nortek's StatePoint membrane-based indirect evaporative system has been deployed globally, including at Digital Edge's Manila facility (specified in 2023) and in hybrid configurations announced in 2025. Munters' Oasis IEC units underpin installations like Sabey's Intergate.Quincy campus, where partial PUE as low as 1.07 has been reported, and DigiPlex's Fetsund, Norway, site, which claims PUE of 1.12. Excool's Zero IDEC units are running at Digital Realty's Dublin facility (PUE around 1.15) and at Chirisa Technology Parks in Virginia, where the company touts "ultra-low water consumption." KyotoCooling's air-to-air heat wheel systems claim average PUE below 1.25 across installations.
On the liquid cooling side, consolidation is underway. Ecolab announced a definitive agreement in March 2026 to acquire CoolIT Systems, a direct liquid cooling leader, for approximately $4.75 billion. The deal is expected to close in Q3 2026. Ecolab management told Bloomberg on March 24 that data center cooling revenues should grow at least 20% annually "for the foreseeable future." LiquidStack, which focuses on two-phase immersion, secured Series B funding from Trane Technologies in 2023 and has continued to raise capital through 2024. Other players—ZutaCore, JetCool, Asetek, Iceotope, Submer—are jockeying for position as the Open Compute Project publishes standardized interfaces and labels (finalized in 2025) to ease deployment.
The Department of Energy's Federal Energy Management Program, in resources updated through 2026, points to ASHRAE guidance allowing dew-point-centric humidity management (recommended range of 42-59°F, or 5.5-15°C, dew point for IT inlet air) and emphasizes economization potential in cool or dry climates. Case studies from Munters, Excool, and others show that in favorable geographies—parts of the Pacific Northwest, the Southwest, northern Europe—air-side or water-side economizers can deliver "free cooling" for more than 75% of the year.
What Comes Next
The data center cooling market is fragmenting into climate-specific solutions. Liquid cooling will dominate the highest-density AI clusters where rack power exceeds what air can realistically handle. Dew-point and advanced evaporative systems will likely expand in regions where psychrometric conditions favor chillerless operation and where regulatory or reputational pressure around water use is mounting.
Madrone's 30% claim—sourced from its YC profile and company site, both live in May 2026—is location-specific to Texas. And it lacks independent third-party validation as of mid-May. That's not unusual for an early-stage startup, but it means operators evaluating the technology will need pilot data, seasonal bin analyses across climate zones, and compatibility testing with liquid cooling distribution units before committing capital at scale.
What's less uncertain? The regulatory and investor environment. The EU's Energy Efficiency Directive is driving transparency on PUE, WUE, and heat reuse, with annual KPI reporting now mandatory. U.S. jurisdictions are using water and grid impacts as levers to slow or block new builds. Shareholder proposals are pushing hyperscalers toward site-level disclosure. Any cooling technology that can credibly demonstrate lower power draw and reduced water consumption—preferably with the flexibility to integrate into hybrid or liquid-cooled architectures—will find a market.
Ecolab's acquisition of CoolIT signals that established players see sustained demand. The IEA's April 2026 commentary reiterates that U.S. data center load growth is outpacing the global average, with AI workloads producing peaky profiles that require flexible cooling and power infrastructure. Goldman Sachs and Dell'Oro are betting billions will flow into the cooling supply chain by decade's end.
Madrone is a small bet in a much larger game. But the game itself is no longer speculative. Data centers are hitting physical limits—on power, on water, on public tolerance—and the industry is scrambling for hardware that can bend those constraints. Whether dew-point cooling proves to be a niche solution for specific climates or a genuine competitor to direct liquid cooling will depend on performance data that hasn't yet been published. What's already clear: the old playbook—chiller plus cooling tower, hope for the best—won't survive the next five years intact.
