Australia’s data centre industry is expanding quickly, with both federal and state governments setting clearer expectations about how that growth should occur. At a national level, the Department of Industry, Science and Resources has released a framework outlining how data centres and AI infrastructure developers are expected to operate, particularly in relation to energy use, water and community impact.
At the same time, the NSW Government has identified 15 data centre projects worth $51.9 billion to progress through the Investment Delivery Authority, reflecting strong private sector interest in building digital infrastructure in the state . There are already around 90 data centres operating in NSW, and investment in the sector has been increasing at an average rate of 65% per year over the past three years .
These developments place data centres at the centre of both the digital economy and the energy transition, with governments now linking approvals and support to how well projects manage their resource demands.
Energy use moves to the centre of policy
Energy consumption is a primary focus of the new federal expectations. Data centres are required to avoid placing upward pressure on electricity prices and to contribute positively to the energy transition.
This includes securing new clean energy generation or storage to offset their demand, paying their share of transmission and distribution infrastructure, and adopting efficiency measures to reduce emissions. Operators are also expected to support grid stability through demand flexibility and peak-load management.
The federal government has made clear that projects not aligned with these expectations will not be prioritised in regulatory assessments. This introduces a direct link between energy performance and project approvals.
Minister for Climate Change and Energy Chris Bowen said: “Data centres have great potential to support our grid and expand new renewable investment, but it’s important we work together across jurisdictions and with industry to get the investment settings right so that we can continue to keep our system secure and energy prices low for all consumers.”
Demand forecasts and system pressure
Industry discussions are already reflecting the scale of the challenge. According to modelling referenced in the The Energy’s Data ↔ Power Sydney forum invitation, data centre demand could reach 13.1 TWh nationally by FY30 under the Australian Energy Market Operator’s Green Energy Industries scenario.
At the same time, recent industry observations point to a disconnect between energy providers and data centre operators, with each side focused on different priorities. Energy companies are exploring how data centres can support the grid and underwrite new projects, while operators are primarily concerned with securing reliable and immediate power supply.
This tension highlights the practical implications of the federal expectations, particularly around how new demand is matched with new supply.
NSW links approvals to infrastructure and resources
The NSW Government’s consultation paper on data centres reinforces similar themes at the state level. The paper sets out a principles-based approach to managing investment, with a focus on energy and water use, infrastructure capacity and long-term impacts on households and businesses .
The Investment Delivery Authority has already filtered proposals, declining to endorse around $40.7 billion worth of data centre and technology projects considered premature or overly speculative . This indicates a move towards prioritising well-developed proposals that can demonstrate alignment with infrastructure and resource constraints.
Treasurer Daniel Mookhey said that the state is focused on proponents with a long-term commitment to both NSW and their social licence, while also recognising the need to manage growth responsibly in relation to power and water use .
Water, workforce and local capability requirements
Beyond energy, the federal expectations extend to water usage, workforce development and local industry participation. Data centres are expected to adopt efficient cooling technologies, use non-potable water where possible and report transparently on water consumption.
Operators are also required to invest in Australian jobs and skills, including apprenticeships and training pathways, and to work with education providers and industry to address workforce gaps.
For large-scale AI compute providers, there is an additional expectation to support research and innovation by making compute resources available to Australian startups, researchers and not-for-profits, and by contributing to local supply chains.
Minister for Industry and Innovation Tim Ayres said: “Australia is open for business – but the kind of business that puts Australia’s national interest first.”
A social licence shaped by energy and resources
Across both federal and state policy, a consistent theme is emerging: data centres are no longer treated as purely digital infrastructure. Their role as large energy and water users means they are increasingly assessed alongside other major industrial developments.
The federal framework positions compliance with these expectations as the basis for a project’s social licence to operate. In NSW, consultation is underway to ensure that planning processes reflect similar priorities, with community and industry feedback set to inform future decisions.
As data centre demand continues to grow alongside AI development, the sector’s expansion is being tied more closely to how it contributes to energy supply, manages resource use and delivers benefits to local communities.
