NSW data centre policy backed, but approvals warning

Data Centres Australia has welcomed the New South Wales Government's consultation paper on data centre policy, backing its principles-based approach.

The industry body said the paper marks a shift in the state's engagement with the sector, but argued that the next stage will depend on how the framework is applied. It warned that implementation must preserve timely project approvals if New South Wales is to remain competitive for investment.

Belinda Dennett, chief executive of Data Centres Australia, said the organisation supports the broad direction set out by the government.

"We are broadly supportive of the five principles outlined in the Consultation Paper. They reflect many of the positions our industry has been advocating - that data centres should and do pay their own way, use resources efficiently, and be transparent about their operations. There are important questions around implementation and ensuring that speed to market remains a focus. These will need to be worked through carefully, but consultation is the right starting point for a productive conversation," Dennett said.

Energy and water

Data Centres Australia used the consultation to press its case that purpose-built facilities should be treated as core digital infrastructure rather than as a planning problem. It argued that rising demand for computing tied to banking, government services and health applications will continue regardless of where servers are housed, and that large-scale facilities use less electricity than dispersed on-site systems.

If projected computing demand to 2030 were met by on-premises servers instead of dedicated data centres, electricity consumption would be 67% higher, according to the organisation. It said data centres currently account for about 2% of Australia's national electricity use, which it compared with shopping centres, and cited market projections suggesting that share could rise to about 6% of National Electricity Market consumption by 2030 under one scenario.

Water use is also likely to remain central to the policy debate in Sydney and surrounding areas. Data Centres Australia said data centres currently use about 0.7% of Sydney's water supply and around 0.04% of Australia's total water use, while arguing that improved cooling systems and greater recycled water supply could limit future pressure.

Dennett said many of the standards sought by policymakers are already in place across the sector.

"It is important to recognise that much of what the Consultation Paper seeks is already happening - driven by existing regulation, by voluntary commitments of our members and their customers, and by the business model that ensures minimising resource use is a commercial reality."

"Data centre developers already pay 100% of their electricity connection costs, including upstream transmission, under the National Electricity Rules. The sector has invested $3.1 billion in grid infrastructure since 2020, with a further $7.2 billion expected by 2030 - more than $1.1 billion of which is excess capacity available for public use. Some energy distributors are recommending lower household tariffs as a direct result of this investment."

"Data Centres Australia members already offset 70% of their energy consumption through renewable energy and have underwritten 1.5 TWh of new renewable generation through Power Purchase Agreements. They are investing up to $1.1 billion in recycled water infrastructure. They report under the National Greenhouse and Energy Reporting Scheme, NABERS and through conditions of development consent. These are not future commitments; they are current practice," Dennett said.

Investment pressure

The consultation comes as data centre construction activity expands in New South Wales. Data Centres Australia said construction commencements in the state have increased by an average of 65% a year over the past three years, reaching $2.6 billion in 2024-25. The sector says it will need about 8,300 additional workers by 2030.

The organisation linked the state policy debate to a wider contest for artificial intelligence infrastructure investment across the Asia-Pacific region. It warned that delays in approvals or overlapping state and federal rules could prompt investors to place projects elsewhere.

"Our strong message to the NSW Government is that while we support sensible, evidence-based policy, implementation must not make Australia a less attractive destination for data centre investment."

"We are in a global race for AI infrastructure. Asian markets including India, Japan and Malaysia are competing aggressively for the same capital, offering faster approvals and clearer investment signals. Australia has all the favourable attributes: availability of land, abundant renewable energy, political stability, a skilled workforce, Five Eyes security status and world-class, homegrown data centre companies. But we cannot take that for granted."

"Speed to market remains critical. Any new framework must be accompanied by a faster, more streamlined approval process. Adding new requirements on top of existing delays will not deliver the outcomes the Government is seeking; it will redirect investment to other markets."

"We will also be looking closely at how the principles interact with the Australian Government's national data centre expectations released this week. Industry cannot operate under multiple overlapping frameworks across jurisdictions. Consistency and clarity matter for investment decisions involving billions of dollars and decades-long commitments," Dennett said.