The NSW Government has introduced a policy framework tying the continued growth of the state’s data centre industry to investment in the energy and water infrastructure needed to support it.
Announced on 17 August, the NSW Data Centre Policy Framework establishes requirements for developers seeking a streamlined assessment process, while separate regulatory changes are intended to prevent the costs of new electricity infrastructure being transferred to households and small businesses.
The policy comes as NSW has 19 data centre projects worth $50.3 billion in its State Significant Development pipeline, in addition to more than 60 facilities already operating or under construction.
Data centre investment in NSW increased by an average of about 75 per cent a year over the three years to December 2025.
Faster assessments tied to performance measures
At the centre of the framework are the NSW Data Centre Guidelines, which set performance measures across six principles covering environmental and efficiency standards, infrastructure costs, additional energy and water supply, community infrastructure, supply chain investment and workforce skills.
Developers that meet the required measures will receive a commitment for their proposals to be assessed within 75 days. Projects will still be required to meet existing planning, environmental and community consultation standards.
Changes are also being made to Independent Planning Commission processes, while the Investment Delivery Authority will convene an industry collaboration event connecting energy and data centre investors.
The guidelines are to be reviewed annually to account for changes in technology and the industry.
Data centres expected to fund additional energy needs
Energy use is a central part of the framework, with data centre proponents expected to fund additional energy supply and contribute to the infrastructure required to service their developments.
The NSW Government has also introduced legislation to enable regulatory changes designed to ensure data centres pay for the electricity network upgrades they require rather than shifting those additional costs to households and small businesses.
The reforms are also intended to support more coordinated planning of the electricity network. Consultation on their detailed implementation has begun.
Minister for Climate Change, Energy and the Environment Penny Sharpe said the policy was intended to link growth in data centres with the infrastructure required to supply them.
“As demand for data centres increases, NSW will ensure the infrastructure needed to support them grows with it.
“These reforms will make sure data centre growth drives investment in renewable energy, while holding operators to the highest air quality standards.”
Water costs also under review
The framework addresses the additional pressure data centres can place on water infrastructure.
The NSW Government has commissioned the Independent Pricing and Regulatory Tribunal to review the water pricing framework applying to data centre customers.
IPART will consider how prices can reflect the full cost of supplying water to data centres, including the effects of drought and water scarcity, while protecting other customers from the costs associated with servicing new demand.
The guidelines also direct proponents to use water efficiently, prioritise recycled water where possible and contribute to additional supply required to support future development.
Climate Council calls for mandatory requirements
The Climate Council welcomed the expectation that data centre investment would be accompanied by additional renewable energy investment, but called for the requirements to be made mandatory.
Climate Council Senior Advisor Ben McLeod said stronger rules were needed to limit the potential effects of rapid data centre growth on electricity consumers and emissions.
“Australians are rightly asking: Where is the power for the data centre boom going to come from? Guidelines like these set us on the path to making sure the answer won’t push up household bills, or climate pollution. The NSW Government should be decisive in shielding its citizens and make these expectations mandatory.”
The Climate Council said national standards were also expected to require data centres to supply additional renewable electricity, regardless of where facilities were developed in Australia.
New Office of AI to be established
Alongside the data centre framework, the NSW Government will establish an Office of AI within The Cabinet Office.
The office will work with Digital NSW, which will continue coordinating government investment in digital, cyber and data infrastructure supporting the adoption of artificial intelligence.
The Office of AI will also work with public sector unions on the use of AI across government.
