Australia data centres to become ‘net-generators’ under proposed reforms

Matt Croagh of Pinsent Masons was commenting as prime minister Anthony Albanese announced plans for Australia to become the first country in the world to bring data centre location, energy and water obligations under a single national framework.

In a landmark speech delivered at the University of Sydney last week, Albanese said the government would introduce tough new rules on data centre development, requiring developers to minimise water use, maximise energy efficiency and fund their own power supply. He said such changes were necessary to ensure data centres “pay their full share of grid connection” to prevent costs being passed on to homes and businesses.

The announcement follows the publication in March of the federal government’s expectations for data centres and AI infrastructure developers, which outlined the government’s ambition “to capture the opportunities of AI and ensure its benefits are shared by the Australian people.”

In June, South Australia became the first Australian state to publish plans for its own designated data centre and AI legislation (16-pages / 2.6MB PDF) as well as plans to streamline approvals, establish a dedicated planning pathway and requirements around the sustainable use of water and energy.

Data centres currently consume an estimated 5% of Australia’s electricity, with costs only expected to rise to meet the growing demand for AI products and services. They also use substantial amounts of water, primarily in their cooling operations.

The federal government’s proposals would also require data centres to fund new electricity generation – particularly renewables – and contribute to grid upgrades to create what Albanese coined as a generation of “net-generators, not net-users” to help strengthen and support Australia’s economic and energy security.

The prime minister also announced plans to open a new national ‘office of AI’ that would establish clear rules surrounding where large data centres are built, as well as the power and water they use.

Commenting on the announcement, Croagh, an energy and infrastructure specialist at Pinsent Masons in Melbourne, said the reforms, if passed, would have a “seismic” impact on Australia’s data centre landscape. “The government’s proposals effectively recast future data centres as energy infrastructure projects in their own right and put renewable energy at the heart of this seismic shift,” he said. “These changes have the potential to fundamentally shape how data centres are financed, built and operated for generations.”

Australia’s data centre industry is expected to attract between A$85 billion (approx. US$58.8bn) to A$135bn in investment from international and domestic investors within the next decade, according to recent projections from the Clean Energy Finance Corporation.

The proposed reforms are expected to have significant consequences for developers and lenders in this space. Croagh said this could result in a shift towards more integrated financing models, where digital infrastructure and clean energy projects are developed and funded together.

Under the federal government’s proposals, AI companies will also be required to negotiate agreements with local artists and media to ensure the creative industries have more control over how their content might be used to train AI models. Albanese said the attorney general was already in consultation with creatives, media and tech companies on copyright and artist protections related to AI training.

The prime minister said he would also seek agreement from state and territory governments on proposals for national standards on AI that would create a single, regulatory framework for AI infrastructure development. Legislation is expected to be introduced to parliament early next year.

Although the details are still to be fleshed out, Veronica Scott, a cyber and privacy expert with Pinsent Masons in Melbourne, said the Albanese government had already indicated several core elements of the forthcoming framework. “The government has announced a series of AI consumer safety priorities, including legislating a digital duty of care, pursuing AI safety in the workplace and considering how consumer law can address AI related risks,” she said. “However, it seems clear that no mandatory AI system-level guardrails or classification of high-risk AI will be part of the proposed legislation.”

Croagh and Scott said the federal government’s new strategy would require businesses across a wide range of sectors to prepare for potential changes to planning and environmental approvals and renewable energy procurement, new grid connection and transmission challenges, increased water access and sustainability requirements, as well as the potential for a rise in demand for power purchase agreements (PPA) for data centres to support new generation capacity.

This will require considerable engagement with a wide range of stakeholders to coordinate regulation at both the federal and state level, including community engagement to secure a social licence to operate, and potential changes to work, health and safety and enhanced compliance requirements for data centre owners and developers.

Australia’s sweeping changes to the regulation of large-scale data centres come as countries across the world are grappling to manage the rising energy costs, infrastructure and environmental pressures linked to their development.

Some countries have taken a more targeted, time-delimited approach. Just hours after Albanese’s speech, New York’s Governor, Kathy Hochul, announced that New York would ban the use of large-scale data centres for one year – making it the first state do so.

The moratorium will pause the construction of new “hyperscale” data centres that use 50MW or more. The governor said the move would allow state regulators time to create new standards for data centre development that would protect ratepayers, the environment, the energy grid and communities across the state.

In 2021, Ireland introduced a moratorium on data centre development over fears about the amount of energy being used by existing facilities. The ban was finally lifted in December 2025 when regulators announced data centres would be required to generate their own energy supply and feed it back into Ireland’s electricity grid via the wholesale market. Data centre companies in Ireland are now expected to source 80% of their annual energy demand via renewables.

However, the Irish government’s data centre policy is subject to a judicial review. The review was lodged by environmental campaigners over concerns it risks locking Ireland into “high-emitting, expensive fossil gas for years to come.”