Data centres are booming in Australia – but at what cost?

Meanwhile, the sheer size and noise of data centres are what individuals tend to notice first.

Key points

• Sydney Water, Australia's largest water utility, notes data centres could apply up to 25% of Sydney's drinking water by 2035.
• And in Marsden Park, additionally in western Sydney, the biggest data centre in the Southern Hemisphere is already under construction only 100m away from a local community.
• The Australian Energy Market Operator notes data centre energy demands could triple by 2030 nationwide.
• Delays for things like air traffic control, robotic surgery or even Netflix would not be tolerated today, Belinda Dennett, CEO of Data Centres Australia, notes.
• Earlier this year, OpenAI's CEO Sam Altman remarked Australia could become a data centre capital of the world, if it wanted to.

Meanwhile, the sheer size and noise of data centres are what individuals tend to notice first. Some say they sound like a jet plane regarding to take off, others complain of a high-pitched whine.

When Lucy* puts her child to bed, she hears a constant humming. "I'll hear it and think, 'What is that? What is going on?', " she notes.

And then she'll remember that the noise is a data centre just 350m (0.2 miles) from her front door in the desirable suburb of Lane Cove, in Sydney's lower north-shore. Another four are in the pipeline at the local industrial park.

Australia has rapidly become a global destination for data centres, with investors attracted to the country's abundance of clean energy, natural gas reserves, and land to power and house their technologies.

Australia is already headed in the direction of major tech's wishes. There are 162 data centres nationwide, with intends for 90 more, and an estimated more than A$155bn (£80bn) of investment capital lined up.

If approved, one of the world's biggest data centres will be built in western Sydney. At one gigawatt, it is projected to be Australia's largest single energy user.

But as more Australians find themselves living next door to data centres – triggering reservations concerning water supplies, energy employ and the environment – numerous are asking whether joining the artificial intelligence (AI) race is worth it. 'What happens if we don't?'

Data centres have been essential to the digital economy since the arrival of the internet.

They were originally built to process and store data for things like emails, online banking and cloud services. But everything changed after 2022 when ChatGPT introduced and AI exploded in popularity. This prompted a sudden race to build more data centres to power the technology.

In practice, the location of these sizeable, windowless buildings filled with beeping servers and cables additionally became significant to latency – the time it takes for data to travel from its source to its destination.

Australia has roughly 13.6 million users of AI every month, making them the sixth most active users of the tech globally.

And experts say having data centres in Australia will lower the barrier to building more of its own AI firms.

"If we think about it in reverse, what happens if we don't build infrastructure here", Dennett notes. "We get none of the value chain, we are just importing tools from someone else and we become just a user."

As "we've got availability of land, we've got political stability, and we've got the Five Eyes security alliance, " Dennett states, australia is additionally an attractive market for foreign investment.

"We've also got a skilled workforce, a pretty stable energy grid, and an abundance of renewable energy potential."

Leading business experts and economists say that without Australia's data centre boom over the last couple of years, the country would probable have headed into a recession.

Jon Whittle, a former director of the digital research centre at the country's national science agency CSIRO. This person is now a leading voice in AI and business, agrees with this. He notes the administration doesn't really have a choice but to continue down the investment path.

"There's some very serious considerations around this, but my main message would be we need to lean into it, " he notes. Fears over power and water supplies.

But leading energy and environmental experts argue Australia has little capacity to meet the massive energy and water demands of new data centres.

Meanwhile, the Australian Energy Market Operator notes data centre energy demands could triple by 2030 nationwide.

Without significant new renewable generation and storage, data centres could push power rates 26% higher in New South Wales (NSW) by 2035, according to the Climate Council, an independent non-profit that provides expert advice.

Since data centres need uninterrupted power at a scale and speed that wind and solar cannot match, there are fears the current boom will trigger a new generation of coal and gas power plants.

No data centre operator analysed in a recent report by Greenpeace Australia Pacific adequately proved their claim of driving the country's renewable energy expansion.

In the US, plenty of data centres are not waiting to build more renewable energy and have identified it cheaper to build new gas-fired power stations instead.

Just a 90-minute drive from Sydney's central business district, the Australian-owned data group Cloud Carrier intends to build three gas-fired power stations to generate energy for an existing data centre and two more going forward.

Moreover, if energy demands place too much pressure on the grid or there is a power outage, data centres, like in Lane Cove, will rely on backup diesel generators.

But NSW Treasurer Daniel Mookhey notes Australia's investment boom in data centres is being accompanied by a boom in renewable energy.

"We don't see the two 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."

Notably, the new private investment will support with renewable energy and create "new industries that are likely to employ future generations", Mookhey states.

But data centres additionally consume substantial amounts of water – some up to 40 million litres a day. It is equivalent to 80, 000 households – to prevent their servers from overheating. In a drought-prone country that is a potentially massive challenge.

Sydney already needs to growth its drinking water supply over the next five to 10 years so as to provide for its growing population, according to Water Services Association of Australia (WSAA).

But if that water is applied for data centres, households are probable to pay the cost for sourcing water from elsewhere, such as through desalination. It costs more than traditional water sources.

In July, Prime Minister Anthony Albanese confirmed a new legal obligation for "large-scale" data centres to underwrite power supplies, limit water apply, and pay for any extra water infrastructure needed.

But the prime minister additionally informed media that the legislation. It will be introduced in 2027, would only apply to new proposals, not projects that were already built or under construction.

In response, environmental and community groups want a pause on all data centre development.

"We've got the government rolling out the red carpet saying we want to be the data centre capital of the world, " Sydney's Lane Cove deputy mayor, Rochelle Flood, notes.

Taken together, the developments around data centres are booming in Australia point to a situation that is still moving, and the coming days should bring more clarity.