Australia may buckle under data centre boom - unless it does two things

Australia is becoming a global hub for data centres, but experts warn households could be hit by higher power bills and the nation may not be equipped to handle the energy consumption.

There are more than 160 data centres and 90 more to come across the country, mostly in and around Sydney and Melbourne, which typically operate all hours of the day.

These include traditional small data centres that use little water, and hyperscale data centres that support large cloud, IT and AI providers and consume greater resources.

The Climate Council has warned the energy use of data centres in Australia could triple by 2030 in a new report published today assessing the risks of the boom.

The centres would consume more of the country’s renewable energy, electricity and internet, leaving little for the average Australian.

This could lead to power price rises of up to 26 per cent in NSW and 23 per cent in Victoria by 2035.

Climate Council chief executive Amanda McKenzie said prices could be controlled if the government matches the increase in data centres with an increase in renewable energy.

“If there’s a whole lot more energy being used by both these data centres, we might need to keep running coal-fired generators longer, which would mean more cost and increased consumer prices,” she said.

Data centres consume large amounts of water for cooling. They will gulp up to an estimated 17 gigalitres over the next five years, according to the report.

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Data centre water demand is estimated to grow to 1.9 per cent of Sydney’s supply and 0.9 per cent of Melbourne’s supply by 2030.

The report noted Sydney Water is receiving applications and inquiries for single data centres to use up to 40 million litres – the equivalent of 16 Olympic swimming pools – every day.

McKenzie said this poses a concern as Australia experiences drier and hotter weather.

The Climate Council is calling on the federal government to increase the use of renewable energy to keep up with demand and introduce clear regulations.

The federal government currently has five expectations for data centres and AI companies to agree to through a memorandum of understanding, with Anthropic and Microsoft the first two to sign on.

The expectations include considering and contributing to national interest, supporting the energy transition to renewables, minimising water use, creating well-paid jobs and contributing to research and innovation.

However, these are not legally binding.

Energy expert Joel Gilmore said the lack of regulation around data centres could create a situation similar to the gas export industry.

“Regular Australians incur costs to get almost no benefit from those exports. They don’t share in those profits much at all,” he said.

Without proper regulation, Gilmore said it would be a “race to the bottom” for building data centres.

“Australia is attractive for data centres and for many reasons, so we want to make sure we do this in a measured way and get planned for the future so that we all benefit from these this new investment rather than suffer,” he said.

Nine.com.au understands the government is not considering legislation at this time and will meet with states and territories on water expectations in August.

A spokesperson for Industry Minister Tim Ayres said the five expectations would help ensure data centres bring benefits to Australia.

“Operators must prioritise Australia’s national interest, including strengthening our security and resilience, support the energy transition with new renewable energy and not put upward pressure on energy prices, managing water responsibly, create well-paid Australian jobs and skills, and back local startups and research, innovation and supply chains,” the spokesperson said.

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“Through the Energy and Climate Ministerial Council, the government is working closely with states and territories to ensure data centre proponents bring new clean energy, cover full share of energy connection costs, lift efficiency, and support grid stability.” 

Assistant Science and Technology Minister Andrew Charlton told an AFR summit yesterday that Australia was well-equipped to welcome the data centre boom.

“Australia is superbly placed to capture more than its share of data centre investment,” he said.

“We have the renewable energy. We have the land. We have the political and financial stability, the security, and the geography.

“But we will only capture that opportunity if we hold on to the public’s confidence. And we can already see the early warning signs here at home.”

In Lane Cove West in Sydney, the local council is considering a moratorium on a cluster of data centres that have been built against the concerned community.

Similarly, there are petitions against data centres in other parts of the country.

Charlton said Australians are the “most sceptical people on earth” about AI and attributed it to the feeling that technology is being done to them, rather than for them.

To combat this, he said the government needed to get out in front and set clear and tough expectations for the industry.

“Unless we can look an Australian family in the eye and tell them, truthfully, that data centres will not push up their power bills, will not threaten their water, and will not degrade their neighbourhood, this industry will spend the next decade on the back foot, fighting the same losing battle we are watching play out overseas,” he said.

“The rules are not the obstacle to investment. They are what makes the investment durable.”