The $155 billion powerhouse hiding in plain sight across Australia
Nestled in suburbs across Australia are unassuming buildings that some believe will be the national economy’s multibillion-dollar saving grace.
The economy grew – albeit slowly – in the latest quarter despite high domestic and global inflation, rising unemployment and the ongoing war in the Middle East.
Data centres are hiding in plain sight across Australia, providing a massive boost to the economy. Peter Rae
This was largely attributed to the nation’s data centre boom.
The federal government and industry experts have been quick to hail data centres as a rare opportunity for the country, brushing off some criticism around the lack of regulation, as well as concerns over their environmental impact and energy demands.
What are data centres?
Data centres are the backbone of digital systems and typically run all hours of the day to store a company’s data.
This helps power the internet, applications, cloud computing and – crucially – artificial intelligence.
The rapid growth of AI has led to an increasing number of hyperscale data centres – large facilities that require hundreds of watts of power and resources to run.
Companies like Amazon, Microsoft, Google, Meta and Apple are behind many of them.
Australia emerges as favoured destination
Last year, Australia emerged as the second-most favoured destination for data centre investment, behind only the US, last year due to the stable regulatory system, land availability, resources and the proximity to the Asia-Pacific market.
The Climate Council estimates there are at least 160 operational data centres across Australia, primarily in NSW and Victoria, with 90 more to be developed.
Assistant Industry Minister Andrew Charlton said, if done right, data centres could create an “enormous opportunity” for the country and more than just jobs and investment.
“They will strengthen our energy system by underwriting new generation and transmission. They will create demand for Australian engineering, software, cybersecurity and advanced manufacturing,” he told an Australian Financial Review summit last week.
Data centres are the backbone of crucial digital services many Australians rely on. Getty
“They will attract world-class talent from abroad and create entrepreneurs here at home.
“They will give Australian researchers, startups and businesses access to the computing power they need.
“And they will ensure that more of the value created by the digital economy is captured here in Australia, rather than offshore.”
Investment powers economic growth
With most signs in the economy pointing towards a recession – high inflation, declining consumer spending, rising unemployment and the Iran war – Australia recorded a modest 0.3 per cent GDP increase last quarter.
This was largely driven by the data centre boom, which has created the biggest increase in machinery and equipment investment in 30 years.
Reserve Bank of Australia Governor Michele Bullock this week forecast continual economic growth as she singled out the data centre sector of the economy as one delivering “strong structural tailwinds”.
Australia's economy is still growing, just at an anaemic rate. Getty
“While these are challenging conditions, the economy is still expected to grow even though modestly, even under these scenarios where oil prices are significantly higher than recent levels,” she said.
“Investment has been a bright spot recently, and growth is expected to continue in sectors of the economy with strong structural tailwinds, such as software, data centres and renewable energy.”
The Australian Energy Market Operator forecasts data centre power demand to rise sharply by 26 per cent in the next five years and 19 per cent in the next 10 years.
Westpac senior economist Pat Bustamante estimates the nation’s data centre investment will exceed $155 billion – approximately 5.6 per cent of the annual GDP – over the next decade and boost economic growth.
RBA Governor Michele Bullock has highlighted data centre investment as a rare economic bright spot. Wolter Peeters
“Crucially, this is just phase one,” he said.
“The larger payoff, via stronger productivity, comes later, during the ‘production phase’ as data centres enable widespread AI adoption.”
Concerns over rapid boom
Climate advocates and clean energy organisations have raised concerns about the energy and resource consumption needed to feed the growing number of data centres.
Hyperscale facilities rely on hundreds of watts of power to run all day and large quantities of water to cool the heat generated.
The Clean Energy Finance Corporation found data centre demand could rise from one per cent of grid electricity consumption today to up to 11 per cent by 2035.
In a report published last year, the corporation warned this could raise electricity prices for the average consumer by around 20 to 25 per cent in some states.
The Climate Council also found power prices could rise 26 per cent in NSW and 23 per cent in Victoria by 2035 but noted this could be mitigated if the increase in data centres was matched with an increase in renewable energy.
The government has set five non-binding expectations for companies to adhere to.
Prime Minister Anthony Albanese told an economics summit on Friday he would ensure new data centres use cleaner and cheaper energy, put downward pressures on bills and boost productivity.
“Our government knows how important it is that we keep working to boost Australia’s productivity so that our economy has the headroom to grow without putting pressure on inflation, and so that the sacrifices that Australians have made through this decade are repaid with lower taxes, higher wages, and a better standard of living,” he said.
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