Australia’s data centre boom

Australia is rapidly emerging as a global hotspot for data centre investment, currently ranking as the second largest location in the world for such projects in 2024. The nation is home to at least 162 operational data centres, with a further 90 projects in the development pipeline. This surge is primarily driven by the expansion of cloud computing and the rise of artificial intelligence (AI). AI-based workloads require significantly more computing power than traditional digital services; for example, AI energy demand is expected to triple globally between 2025 and 2030. In Australia, the industry used approximately four terawatt-hours (TWh) in 2024-25, representing 2% of the electricity in the main grid. This demand is forecast to triple to nearly 12 TWh by 2030, equivalent to 6% of the National Electricity Market (NEM).

The scale of new projects is unprecedented. The proposed 1.2 GW Mamre Road facility in New South Wales would have a maximum capacity 25% greater than the Tomago Aluminium Smelter, positioning it as the nation’s largest single energy load. Total maximum demand from all proposed projects in Australia could exceed 21 GW, which is more than seven times the capacity of Eraring, the country’s largest coal-fired power station.

The risks of poorly managed data centre growth

Unmanaged growth poses significant risks to Australia’s energy security and climate goals. If the surge in demand is met with increased fossil gas generation rather than new renewables and storage, wholesale power prices could rise by as much as 26% in New South Wales and 23% in Victoria by 2035. Modelling suggests that without intervention, the national electricity grid could be 14% more polluting in 2035 than it would otherwise be, potentially derailing progress toward net zero targets. Furthermore, some industry figures have used this demand to justify calls for new gas or nuclear generation, which the report identifies as expensive, slow to deploy, and carbon-intensive.

Water resources are also under mounting pressure. The industry’s water consumption is projected to more than triple from 5.5 gigalitres (GL) to 17 GL over the next five years. Major water utilities are already receiving connection requests for single sites requiring up to 40 million litres per day—equivalent to 16 Olympic swimming pools. In Sydney, data centres could account for up to 20% of the city’s water supply by 2035 if growth remains unchecked.

Opportunities to align data centres with our climate and energy goals

Data centres can support the clean energy transition if managed proactively. Operators and their customers, often well-capitalised global tech firms, can drive new renewable investment through Power Purchase Agreements (PPAs) that ensure “additionality”—the construction of new generation capacity that would have been built otherwise. Case studies of innovation include NextDC’s M1 centre in Port Melbourne, which features one of Australia’s largest rooftop solar systems, and AirTrunk’s plan for a large-scale battery storage system at its Western Sydney facility.

Further opportunities exist in grid support through demand flexibility. Data centres can absorb renewable energy that would otherwise be curtailed during periods of high solar output. Strategically siting facilities in regional areas, such as Renewable Energy Zones (REZs) or former coal sites like Hazelwood in Victoria, can utilise existing infrastructure and support regional economies. The proposed 720 MW Hazelwood facility intends to use non-potable water, reducing strain on drinking supplies. Additionally, international examples show waste heat from data centres being repurposed, such as a pilot project in Sweden that uses heat to maintain a stable climate in a greenhouse.

How Australia can get data centres right for our climate

The report provides seven key recommendations for government action to secure a sustainable future. Firstly, data centres and their customers must be required to support additional renewable energy and firming capacity to match their demand, rather than relying on offsets. This includes a suggested transition period of up to three years to align with renewable project development timelines. Secondly, best-practice energy and water efficiency ratings must become mandatory, including a minimum five-star NABERS Energy rating and defined Water Usage Effectiveness (WUE) thresholds.

Other recommendations include requiring the use of flexible demand backed by renewable solutions and ensuring data centres pay for the specific energy and water infrastructure upgrades they necessitate to protect households from rising bills. There is an urgent need for increased transparency regarding current and future water consumption, energy use, and climate pollution through nationally consistent reporting. Finally, the report advocates for exploring options to encourage best-practice regional data centres and adopting a collaborative, coordinated approach across all levels of government to manage the scale and pace of development responsibly.