Australia is in the midst of a critical shift from fossil fuels to renewable energy to cut climate pollution and keep communities safer from worsening fires, floods and extreme heat. Climate-fuelled disasters across Australia are already more frequent and intense, and communities are living with the consequences. In New South Wales, the most recent budget showed disaster costs in that state have increased 1000% since the Black Summer bushfires of 2019/20. Unless we accelerate our switch to clean alternatives, and away from coal, oil and gas, such events will continue to escalate.
We are making strong progress, with renewables and storage now supplying around 45% of electricity in the main grid – nearly double their share six years ago. But significant work remains ahead of us, and accelerating this shift is essential to meeting climate targets while maintaining a reliable and affordable energy system.
Right now, a new wave of data centre development, driven in large part by a surge in demand for artificial intelligence, presents challenges to that. While data centres have been in Australia for many years, the scale and pace of new development will shape our energy system for decades to come. Australia has rapidly emerged as a global hub, becoming the second largest data centre investment location in the world in 2024. Without additional renewable generation, storage and system flexibility that matches energy demand, the industry risks extending reliance on coal and gas, pushing up power prices, straining system reliability, and creating a material risk to national and state climate targets.
Data centres can require significant volumes of water, with industry estimates suggesting demand could at least triple by 2030. As climate change intensifies drought and water stress across Australia, unchecked growth could place increasing pressure on already constrained water resources.
With strong and enforceable policy, data centres can drive new clean energy investment and support a more resilient electricity system. Many industry members and their customers — often large, well-capitalised global tech companies — are already taking innovative and proactive steps to procure renewable energy and firming capacity, alongside measures to improve energy and water efficiency. But we cannot rely on voluntary industry action. With at least 90 data centres already in the pipeline, there is no time to wait. Every new data centre in Australia must be subject to strong standards for both its energy and water use.
Key findings
1. Australia is in the midst of a critical clean energy switch and data centre boom. Governments must act right now to secure our energy and climate imperatives.
- Australia is rapidly scaling up renewables to phase out fossil fuels, cut climate pollution and keep our communities safer from worsening fires, floods and heat. The disaster toll is already severe with costs up 1000% in NSW since 2019/20.
- Clean energy is not only critical to our safety but also underpins our economic prosperity: employing Australians, boosting energy security, powering new industries and driving down costs.
- At the same time, Australia is emerging as a global data centre investment hotspot: with 162 data centres already built and more than 90 projects in development.
- The data centre industry is already a significant energy user, and demand is expected to triple by 2030. By then, the industry could comprise 6% (12 TWh) of electricity demand in our main grid, around enough to power all the homes in Victoria.
2. A surge in energy and water demand from data centres is underway, with mega projects set to rival our largest industrial users.
- Data centre energy demand has already nearly doubled in Victoria in the past 12 months, and risen 18% in NSW. If all proposed projects in Australia were to go ahead, their total maximum demand would be more than 21 GW – or more than seven times the capacity of Eraring, Australia’s biggest coal-fired power station.
- Mega “hyperscale” data centre proposals are set to rival our largest industrial energy users. For example, the proposed 1.2 GW Mamre Road facility in NSW has a maximum capacity 25% greater than the Tomago Aluminium Smelter.
- Water demand from this industry is surging as Australia’s climate is becoming hotter and drier. Water utilities are receiving single-site connection requests for up to 40 million litres – 16 Olympic swimming pools worth – per day.
- If managed proactively, data centre demand could contribute to our energy security, with more renewable generation that also delivers lower cost power.
3. Without strong rules, data centre demand will push up power prices for homes and businesses, and worsen climate risks.
- If data centre energy growth is matched with more gas, rather than renewables and storage, wholesale power prices will rise across Australia as high as 26% in NSW and 23% in Victoria by 2035.
- An impact on power bills is not inevitable. Matching new data centre load with additional, lower-cost renewables and storage would almost entirely avoid dumping extra costs onto households, other industries and businesses.
- Without intervention, data centre electricity demand will be met by more polluting coal and gas; delaying the retirement of ageing and unreliable coal stations and increasing reliance on expensive fossil gas. Our national electricity grid could be 14% more polluting than it otherwise would be in 2035.
- Developers of data centres, and their big tech customers, should fund approaches that lock in the benefits of our national switch to clean energy, avoid unnecessary price hikes and prevent further climate damage.
4. Enforceable rules can ensure the data boom supports a reliable, clean grid that secures Australia’s future.
- Given what’s at stake, governments must move beyond voluntary signals to enforceable, nationally uniform requirements for data centres and their customers that:
- Support additional renewable energy and firming capacity, and restrict use of offsets;
- Maximise energy and water efficiency and avoid drawing on drinking water supplies;
- Use flexible demand, backed by renewable solutions, to keep our energy system reliable and secure;
- Pay for the energy and water infrastructure they need; and
- Make current and future water consumption, and energy use and climate pollution transparent.
- By coordinating planning, promoting best-practice regional data centre development and ensuring renewable energy infrastructure is delivered at the pace and scale required for our entire economy, governments can enable the data centre industry to play a more constructive role.
- Choices made now will determine if the data centre industry – and its global tech customers – act as partners in Australia’s climate goals, or become a reason they’re derailed.
