Australia Datacentres: AI Boom Threatens Power & Water Supply?

Australia’s burgeoning datacentre industry, fuelled by the global demand for artificial intelligence processing and storage, is rapidly becoming a critical issue for the nation’s energy and water security. Whereas the federal government aims to position Australia as a regional AI hub, concerns are mounting over the strain these facilities will place on existing infrastructure and the potential impact on power prices and resource availability.

The Scale of the Expansion

We find currently over 250 datacentres operating across Australia, primarily in Sydney and Melbourne. Yet, this number is poised to grow significantly, with tech giants like Amazon pledging an additional A$20 billion in new facilities across New South Wales and Victoria. The Guardian reports that Amazon’s investment will be accompanied by the development of three solar farms, but the overall energy demand is still a major point of contention. The New South Wales government has also launched a new authority to expedite approvals for major infrastructure projects, including datacentres, signaling a clear push for expansion.

Power Demand: A Tripling Threat

The Australian Energy Market Operator (Aemo) forecasts that datacentre electricity consumption could triple within the next five years, currently accounting for around 2% of national grid demand. By 2030, Aemo projects that datacentres could consume as much power as the entire nation’s fleet of electric vehicles. The potential scale is even more dramatic looking ahead to 2035, with estimates suggesting datacentre energy demands could reach 21.4 terawatt hours – nearly the annual consumption of Australia’s four aluminium smelters. AGL, a major Australian energy provider, anticipates that actual demand could even exceed Aemo’s forecasts.

This surge in demand raises concerns about electricity prices. Dr. Dylan McConnell, an energy systems researcher at the University of NSW, explains that building a larger energy system to accommodate this load will inevitably lead to higher costs. A report by Baringa consultants for the Clean Energy Finance Corporation (CEFC) found that datacentre growth could increase wholesale electricity prices by 26% in NSW and 23% in Victoria by 2035, largely due to the need for more expensive gas peaking generation. This reliance on gas could also increase grid emissions, potentially hindering Australia’s net-zero ambitions.

Water Consumption: A Growing Strain

Beyond electricity, datacentres require substantial amounts of water for cooling purposes. While Data Centres Australia describes the industry as “modest water users” and highlights the potential for closed-loop cooling systems and recycled water, water authorities are bracing for significant demand. Forecasts indicate that datacentre demand in Sydney alone could reach 250 megalitres per day by 2035 – equivalent to the entire city of Canberra’s drinking water supply. Melbourne Water reports that current development applications for new hyperscale datacentres already exceed the water demand of the state’s top 30 business customers combined.

Government and Industry Responses

The Australian government acknowledges the energy demands of datacentres, with Energy Minister Chris Bowen stating that any new facilities should be powered by renewable energy. However, he also emphasized the need for “flexibility and redundancy” in energy supply. The CEFC’s head of infrastructure, Julia Hinwood, argues that Australia can mitigate the negative impacts by investing early in renewable energy and storage capacity.

Data Centres Australia maintains that the industry is already a significant investor in renewable energy, with power purchase agreements and onsite solar accounting for approximately 70% of its energy consumption. However, critics argue that the pace of renewable energy development isn’t keeping up with the rapidly increasing demand from datacentres.

A coalition of energy and environment groups, including the Clean Energy Council, Electrical Trades Union, Australian Conservation Foundation and Climate Energy Finance, have proposed “public interest principles for datacentres” that would require developers to invest in new renewable energy sources and water recycling infrastructure. Adam Bandt, the chief executive of the Australian Conservation Foundation, argues that tech corporations should be “forced to do their fair share” to avoid draining national resources.

The US Parallel and Regulatory Scrutiny

The concerns surrounding datacentre energy consumption aren’t unique to Australia. In the United States, President Donald Trump recently announced “ratepayer protection pledges” requiring tech companies to meet their own power needs, acknowledging concerns that increased demand could drive up electricity bills for consumers.

In Australia, a New South Wales parliamentary inquiry is currently examining the social, environmental, and economic effects of the datacentre boom. The Australian Energy Council has also highlighted key policy questions that need to be addressed, including whether datacentres should be required to be 100% renewable and whether that requirement should be based on total demand or time-of-use consumption.

What’s Next: Navigating the Approvals Process

The coming months will be crucial in shaping the future of Australia’s datacentre industry. The NSW parliamentary inquiry will deliver its findings, and the federal government is expected to release its AI and datacentre strategy. Developers will continue to submit applications for new facilities, and the speed and conditions of those approvals will be a key indicator of the government’s commitment to balancing economic growth with environmental sustainability. The CEFC report suggests a focus on incentivizing renewable energy investment alongside datacentre development will be critical to avoid significant price increases and emissions setbacks.