Australia is becoming a data centre capital – but at what cost?

The hum is a constant, a low thrum that residents in Sydney’s desirable lower north shore suburb of Lane Cove have come to associate with the nearby data centre, situated just 350 metres from Lucy’s home. For her, the sound is a persistent reminder of the impending development: four more data centres are planned for the local industrial park, with plans that have residents like Lucy questioning the true price of Australia’s burgeoning digital infrastructure. Investors are flocking to Australia, drawn by its abundant clean energy potential, vast natural gas reserves, and ample land, all crucial for powering and housing the ever-expanding technological demands of data centres. Even OpenAI’s CEO, Sam Altman, has publicly declared Australia’s potential to become a global data centre capital.

The nation is indeed accelerating in this direction. Currently, Australia hosts 162 data centres, with an ambitious 90 more in the pipeline, attracting an estimated A$155 billion (£80 billion) in investment. A colossal data centre, slated to be Australia’s largest single energy consumer at one gigawatt, is planned for western Sydney. Meanwhile, in Marsden Park, also in western Sydney, the construction of the Southern Hemisphere’s largest data centre is already underway, mere metres from a residential community. However, as more Australians find themselves living in close proximity to these massive facilities, concerns are mounting over water supply security, escalating energy consumption, and environmental impacts, prompting a critical re-evaluation of the nation’s pursuit of the artificial intelligence (AI) race.

The ubiquity of data centres is not a new phenomenon; they have been foundational to the digital economy since the internet’s inception, originally designed to process and store data for everyday applications like emails and online banking. The landscape shifted dramatically following the 2022 launch of ChatGPT, which ignited an AI explosion and spurred an urgent need for more data centres to power this revolutionary technology. The proximity of these large, windowless buildings, filled with the ceaseless beeping of servers and a labyrinth of cables, has become paramount due to latency – the critical time it takes for data to travel from its source to its destination. As Belinda Dennett, CEO of Data Centres Australia, points out, any delays in critical services like air traffic control, robotic surgery, or even streaming services like Netflix are now intolerable.

Australia boasts a significant user base for AI, with approximately 13.6 million monthly users, ranking it sixth globally in AI adoption. Experts believe that establishing data centres within Australia will significantly lower the barrier for developing homegrown AI companies. Dennett articulates a stark choice: "If we think about it in reverse, what happens if we don’t build infrastructure here? We get none of the value chain, we are just importing tools from someone else and we become just a user." Australia’s appeal extends beyond technological needs; its attractive market for foreign investment is bolstered by available land, political stability, and its membership in the Five Eyes security alliance. Furthermore, the nation offers a skilled workforce, a relatively stable energy grid, and immense potential for renewable energy generation.

Leading business experts and economists posit that the recent surge in data centre investment has been instrumental in preventing Australia from succumbing to a recession. Jon Whittle, a former director at CSIRO’s digital research centre and a prominent voice in AI and business, echoes this sentiment, arguing that the government has little choice but to embrace this investment trajectory. "There’s some very serious considerations around this, but my main message would be we need to lean into it," he states.

However, a chorus of energy and environmental experts is raising serious questions about Australia’s capacity to meet the enormous energy and water demands of this data centre boom. The Australian Energy Market Operator projects that data centres’ energy consumption could triple nationwide by 2030. The Climate Council, an independent non-profit organisation, warns that without substantial new renewable generation and storage capacity, data centres could drive power prices up by 26% in New South Wales (NSW) by 2035. The inherent need for uninterrupted power, at a scale that current wind and solar technologies cannot consistently match, fuels concerns that this boom could inadvertently lead to the construction of new coal and gas power plants. A recent Greenpeace Australia Pacific report found that no analysed data centre operator could adequately substantiate their claims of driving the country’s renewable energy growth. In the United States, numerous data centres have opted for the more economically viable solution of building new gas-fired power stations rather than investing in renewable energy infrastructure.

Illustrating this trend, Cloud Carrier, an Australian data group, plans to construct three gas-fired power stations to supply an existing data centre and two future facilities, located just a 90-minute drive from Sydney’s central business district. Furthermore, if energy demands place undue strain on the grid or lead to power outages, data centres, such as those planned in Lane Cove, will resort to backup diesel generators. Nevertheless, NSW Treasurer Daniel Mookhey maintains that the data centre investment boom is intrinsically linked to a concurrent boom in renewable energy. "We don’t see the two [as] unrelated," he tells the BBC. "We see data centres allowing us to replace a lot of our old coal-fired power with clean, green renewable energy with the private sector picking up a large amount of the tab because otherwise households would." He believes this private investment will not only bolster renewable energy but also foster "new industries that are likely to employ future generations."

Beyond energy consumption, data centres also require vast quantities of water – some facilities can use up to 40 million litres per day, equivalent to the needs of 80,000 households – to prevent their servers from overheating. In a country perpetually susceptible to drought, this represents a significant potential problem. Sydney, according to the Water Services Association of Australia (WSAA), already faces the necessity of augmenting its drinking water supply over the next five to ten years to accommodate its growing population. If this water is diverted to data centres, households may bear the brunt of increased costs associated with sourcing water from more expensive alternatives, such as desalination. Sydney Water, the state’s largest water utility, projects that data centres could consume as much as 25% of Sydney’s drinking water by 2035.

In response to these mounting concerns, Prime Minister Anthony Albanese announced in July a new legal obligation for "large-scale" data centres to underwrite their power supplies, limit water usage, and cover the costs of any necessary new water infrastructure. However, this legislation, slated for introduction in 2027, will only apply to new proposals, exempting projects already under construction or completed. This has prompted environmental and community groups to call for a moratorium on all data centre development. Rochelle Flood, deputy mayor of Sydney’s Lane Cove, expresses dismay, stating, "We’ve got the government rolling out the red carpet saying we want to be the data centre capital of the world. But can we actually do that sustainably or is it going to set us back in terms of net zero and our water storage targets?"

A town hall meeting organized by Greenpeace Australia Pacific in Lane Cove revealed widespread local sentiment of being excluded from the decision-making process regarding their area’s transformation into a data centre hub. One of the proposed centres in the cluster is alarmingly close to residences and a primary school. Furthermore, Flood highlights that if the four planned data centres are approved in the industrial park, 50% of existing businesses will be forced to relocate, taking their jobs with them. Felipe Tanaka, a manager at a business within the industrial park, faces relocation due to a data centre development. "We never knew that something like this would happen," Tanaka states. "Thousands of jobs are going to be gone from this area in the next few years." While the construction phase of a large data centre can employ over a thousand workers, operational roles typically number around 100. "Most of our 300 to 400 workers here are locals," Tanaka laments. "Having to move will probably see half of my employees gone."

NSW Treasurer Mookhey counters that the job creation associated with data centres extends beyond direct employment within the facilities, stemming instead from the businesses that utilize them. "When Microsoft and Amazon do business here in NSW, it’s pleasing to see they are committed to providing some of their more skilled operations and locating them here," he asserts. However, the nature of other potential skilled job creation remains unclear, as does the specific purpose of these data centres. Critics point out that a significant portion of AI usage involves frivolous applications, such as generating cat GIFs, which consume energy equivalent to running a microwave for an hour. "They’re telling us this is essential… that we need to have these centres in our neighbourhood but they’re not saying what it’s for," Flood questions. "When our drinking water, energy and land is being used for generative AI slop, that is not giving any value back."

*Names have been changed to protect identities.