Executive summary

Data centres are at the core of Australia’s digital infrastructure, underpinning AI, cloud services, and the digital lives of citizens. Currently, data centres consume 3.9 terawatt hours (TWh) of energy annually, representing 2 per cent of Australia’s annual electricity consumption. This is forecast to grow to approximately 6 per cent by 2030. The sector generates high economic value relative to its consumption, producing approximately $12.6 billion in gross value added (GVA) per TWh of energy consumed, which is higher than mining ($9.1 billion) and manufacturing ($8.8 billion).

In terms of water usage, data centres consume 5.5 gigalitres (GL) of potable water nationally, or 0.04 per cent of Australia’s total water use. This is six times less than the water used annually by the nation’s public swimming pools. While usage is currently modest, it is forecast to reach 1.9 per cent of Sydney’s water and 0.9 per cent of Melbourne’s water by 2030. The sector acts as a significant investor, having contributed $3.1 billion in grid infrastructure since 2020 and $40 million to potable water pipeline upgrades, creating excess capacity for local communities.

Data centres power Australia’s digital economy

Data centres facilitate high-performance computing at speeds more than one million times faster than standard desktops, supporting essential services such as banking, emergency response, and the national tax and welfare systems. Electricity is used primarily to power IT loads (computing and networking) and infrastructure loads (cooling and support systems). AEMO projects that total consumption will reach 12 TWh by 2030 as the digital economy expands and AI adoption increases.

While the industry has received 44 GW of grid connection requests, much of this is classified as ‘phantom demand’—requests unlikely to materialise as actual draw. Analysts have reduced this to 7.9 GW of non-duplicative projects deemed likely to proceed. Accurate forecasting is complicated by commercial sensitivities, and improved coordination between water authorities, grid operators, and data centre developers is cited as a necessity for future infrastructure planning.

Data centres support Australia’s renewable energy future

Data centres are active investors across the energy supply chain. Through power purchase agreements (PPAs) that underwrite new renewable projects, the sector currently supports 1.5 TWh of renewable energy generation, which is equivalent to powering over 200,000 homes. Currently, around 70 per cent of data centre energy demand is attributable to renewable sources. On-site solar installations industry-wide contribute approximately 11 GWh of electricity annually.

The sector is significantly more efficient than traditional computing; data centres are over seven times more efficient than on-premise servers. Moving existing on-premise workloads to data centres results in substantial national energy savings. If Australia’s 2030 projected compute requirements were met using on-premise servers instead of data centres, electricity use would be approximately 629 per cent higher, reaching 25.5 TWh. Additionally, the sector’s forecast investment of $7.2 billion in grid infrastructure by 2030 includes $1.1 billion of excess capacity available for public use.

Data centres in Australia are poised to become leaders in water stewardship

Data centre water demand could reach 17 GL by 2030 as the industry adopts water-based cooling to manage high-density AI workloads and improve energy efficiency. Water cooling is preferred for certain designs because heat moves through water approximately 25 times faster than through air. Operators face a trade-off between using water for cooling (energy-efficient) and air-cooling systems (high electricity consumption but no water usage).

The industry has already funded $40 million in pipeline upgrades, providing 2 GL of additional water supply to local areas, equivalent to the annual use of 10,000 households. Furthermore, the sector is expected to invest between $500 million and $1.1 billion in recycled water infrastructure by 2030. This investment could replace up to 50 per cent of potable water consumption with recycled sources, equivalent to the annual water use of 50,000 Australian homes. Innovative technologies, such as closed-loop liquid cooling and on-site rainwater harvesting, are already being deployed to minimise environmental footprints.

Coordinated policy action is needed to harness sustainable data centre growth

Effective policy settings are required to ensure data centre growth accelerates the clean energy transition. Recommendations include accelerating critical infrastructure approvals by prioritising and fast-tracking electricity network upgrades and streamlining water infrastructure processes. Governments should establish flexible and predictable approval processes that allow different stages to proceed concurrently with design finalisation.

The report also suggests promoting industry-led standards based on global best practices rather than rigid mandates. Coordination between developers, utilities, and network operators should be facilitated to improve long-term visibility of demand. Finally, the government should remove regulatory barriers to private investment in grid and water infrastructure and consider mechanisms to ensure the supply of critical energy grid components to reduce project delays.