Data centres are behind many of the modern conveniences we enjoy: sending emails, online shopping, streaming TV shows, cloud storage, navigation apps – the list goes on. Data centres also underpin essential services: from transport and logistics, to hospitals and defence.
But right now, a new wave of data centre development, driven in large part by a surge in demand for artificial intelligence (AI), presents challenges for our critical shift to renewable energy. The scale and pace of new development will shape our energy system for decades to come, with energy demand expected to triple by 2030. Data centres can also require significant volumes of water, with industry estimates suggesting water demand will triple by 2030. As climate change intensifies drought and water stress across Australia, unchecked growth could place increasing pressure on already constrained water resources.
Here are nine key questions about data centres and our climate, answered.
Learn more about the climate impacts of data centres and what Governments need to do about it in our report Clouded Future: Managing the risks of the data centre boom.
What are data centres?
Data centres are buildings that run all day, every day, to process, store, and manage digital data. They house equipment like servers, routers, switches, firewalls, and storage systems. There are different types of data centres, with different functions and needs.
- Hyperscale: Large, centralised facilities designed to meet the needs of large cloud computing, IT and increasingly AI providers. These are either owned and operated directly by technology companies, or developed and managed by a data centre operator, with tech companies often acting as “anchor tenants” that underpin their development.
- AI factories: Very large hyperscale facilities designed specifically for training and running AI models. Because they don’t need to process and deliver data instantly, they can more easily be located outside of major cities.
- Co-location: facilities that are developed and managed by a data centre operator, but leased by multiple customers who house their IT equipment within the centre.
- Traditional data centres (edge and enterprise): Small data centres, located near users (edge) or operated on-premises by organisations (enterprise) to support IT systems and data processing needs.
The hyperscale and AI data centres being proposed in Australia today are far larger than early facilities. For example, the proposed 1.2 GW Mamre Road Data Centre in Sydney would be one of the biggest data centres in the world if it goes ahead – comprising six four-storey buildings, 936 cooling units and 852 diesel back-up generators, and 14.4 million litres of diesel storage. While incorporating design redundancy, the facility’s 1.2 GW maximum capacity would surpass the 950 MW Tomago Aluminium Smelter by over 25%, positioning it as Australia’s largest single energy user.
How many data centres are in Australia, and how much energy and water do they use?
Australia is currently home to at least 162 operational data centres. Australia has long been a leading global destination for data centre investment, supported by our relative regulatory and political stability, skilled workforce, abundant renewable energy potential, proximity to Asia, and availability of land compared to many other jurisdictions.
Energy use: In 2024-25, data centres used around four terawatt-hours (TWh), or 2%, of the electricity in Australia’s main grid – the National Electricity Market (NEM). This is equivalent to the electricity use of more than 700,000 homes. The industry’s energy demand is already growing rapidly, reportedly almost doubling in Victoria and increasing by 18% in NSW over the past 12 months.
Water use: Australia’s existing data centres use a relatively small amount of water compared to other major industries. The industry estimates that it currently uses less than 0.1% of Australia’s total water. In Sydney, this rises to 0.7%, while data centres use 0.2% of Melbourne’s water supply.
How many more data centres are going to be built in Australia?
There are around 90 more data centres in the pipeline in Australia. However, not all of these are expected to be built. There is significant uncertainty in Australia’s data centre forecasts, creating challenges in planning for future energy and water demand.
Why are so many new data centres coming to Australia?
Emerging data centre growth in Australia is driven in large part by AI, as well as cloud computing. In Australia, data centre infrastructure is often developed and operated by a specialist provider, but leased to one or more other customers – increasingly hyperscale cloud and AI firms – who house and operate their own IT equipment in the data centre. OpenAI, Anthropic, Amazon and Microsoft have all announced commitments to build AI capacity in Australia.
How much energy will data centres use?
In its latest official forecasts, the Australian Energy Market Operator (AEMO) expects data centre energy demand in the NEM to triple to nearly 12 TWh by 2030. This is equivalent to 6% of the NEM’s electricity, or around enough to power all the homes in Victoria. By 2049-50, data centre demand is expected to reach 34 TWh, or around 12% of power in the NEM.
Network service providers are receiving large numbers of new connection requests from data centres, representing a “step‑change in demand beyond what is currently reflected” in AEMO’s forecasts. At the same time, there is evidence that applications are being made for energy and water connections for projects that will never materialise – known as phantom demand – meaning some forecasts may be significantly overinflated.
Data centre energy demand in NSW
There are 44 data centres (as at 31 March 2026) in the development pipeline in NSW totalling 11.4 GW – equivalent to the power from nearly four Eraring coal stations, the largest coal station in Australia (2.88 GW). However, the industry estimates that only 1.2 GW of additional data centre load will come online in Sydney by 2030. This contrasts with Transgrid’s connections pipeline, where at least 6 GW of data centre applications are progressing “at pace” – more than the new capacity that will be unlocked through the first 4.5 GW stage of the Central-West Orana Renewable Energy Zone (REZ).
Data centre energy demand in Victoria
There are at least 30 data centres totalling 9 GW in the pipeline in Victoria, equivalent to the power of four Loy Yang A coal stations (2.21 GW). The industry estimates that just 0.7 GW will come online between now and 2030.
How much water will data centres need?
Like data centre energy demand forecasts, water forecasts are uncertain – the industry estimates its total water demand in Australia will more than triple from 5.5 GL to 17 GL over the next five years. In Sydney, data centre water demand is projected to grow to 1.9% of the city’s supply, and to 0.9% of Melbourne’s by 2030.
Water utilities are receiving connection requests that indicate the industry’s demand could be far greater. Sydney Water is receiving applications and enquiries for single data centres to use up to 40 million litres – equivalent to 16 Olympic swimming pools – every day. The industry notes that while facilities rarely require the maximum water usage, operators must apply for capacity based on worst-case scenarios to ensure adequate supply at all times.
Could data centres increase power prices?
If data centre growth is not matched with new renewable generation and storage, this could increase wholesale prices by more than 20% across our main grid by 2035, on average – and up to 26% in NSW and 23% in Victoria. These projected increases are due largely to the increased reliance on expensive and polluting fossil gas. With wholesale prices making up around 40% of a typical residential power bill, this could significantly impact households and businesses.
The potential impacts are not confined to states with significant data centre development: South Australia and Tasmania would also be impacted despite limited added data centre load in these states, as their generation would be exported to other states to meet demand.
These impacts can be significantly reduced if we match new data centre load with additional renewable generation, while adding storage to reduce reliance on peaking gas in the evenings would further limit increases and avoid material increases to climate pollution.
What do data centres mean for our energy and climate targets?
If surging data centre energy demand is not met with an equivalent increase in additional renewable energy, Australia faces a critical setback in our shift to renewables. We may need to rely on coal for longer, and increase gas generation. Rapidly growing electricity demand from AI and data centres is emerging as a significant challenge to achieving deeper cuts in climate pollution.
Right now, the data centre industry’s climate pollution is already growing, driven largely by its rapidly expanding energy consumption, at a time when Australia’s climate pollution needs to be falling rapidly.
Modelling by Baringa indicates that if data centres are built without additional renewable capacity, NEM climate pollution could be 14% higher than it would otherwise be in 2035. These impacts are avoidable if we put the policies in place to ensure data centres are powered by additional renewable and storage (Baringa and CEFC 2025).
What should governments do about it?
Nationally consistent, enforceable standards will avoid unnecessary increases in power bills and worsening climate impacts, while providing certainty for investors. Many industry members and their customers – often large, well-capitalised global tech companies – are already taking innovative and proactive steps to procure low-cost renewable energy and firming capacity, alongside measures to improve energy and water efficiency. But we cannot rely on voluntary industry action.
The Australian Government has set expectations for data centres, providing an important signal to the industry, but we need to go further. Our national energy laws, state planning frameworks, and water and energy utilities are where key decisions around data centre approvals and connections are made.
With at least 90 new data centres already proposed across Australia, we cannot afford to wait. Five key requirements must be applied to all future data centres in Australia, including those already under assessment:
- Support additional renewable energy and firming capacity to match their demand – without relying on offsets
- Best-practice energy and water efficiency standards – and avoiding drawing on drinking water supplies
- Flexible energy demand, backed by renewable solutions
- Pay for the energy and water infrastructure they need to protect households from rising bills
- Increase transparency of the magnitude of current and future water consumption, energy use and climate pollution
Government action is also needed to coordinate development, promote best-practice regional data centre development, and ensure renewable energy infrastructure is delivered at the pace and scale required for our entire economy.
Our report Clouded Future: Managing the risks of the data centre boom contains detailed policy recommendations for governments to act swiftly to better align data centre growth with our switch to clean, reliable and affordable energy.
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