What does a good data centre future look like? And how do we get there?

Australia is in the middle of a rapid data centre rollout. Warehouses full of computer servers that run the artificial intelligence (AI) tools society increasingly uses are being built at pace, and they draw heavily on essential resources.

Data centres need large amounts of electricity, water and land. Without the right planning and oversight, developers will secure what they need at the expense of Australia’s economy, nature and communities.

Without careful design, data centres could increase power bills, put pressure on water supplies, and slow the transition to net zero. With it, they can do the opposite, stabilising the electricity grid, attracting investment to regions, and creating economic growth.

It’s tempting to think futuristic technologies could make these problems disappear – things like putting data centres underwater or in space . These may eventually matter, but for now they are small-scale experiments , a long way from being able to absorb the gigawatts of demand Australia needs to plan for over the coming decade.

The Australian government is currently designing the rules that will govern AI and data centres, with national legislation expected in early 2027. So what does a good data centre future look like? And what needs to go into those rules to make this a reality?

Data centres have existed for decades. But something has changed, and this essential infrastructure is now at the centre of a major policy debate.

This article is part of The Conversation’s series on data centres – what they are, why we need them, and why they’re suddenly so controversial.

The right kind of energy

Energy is a significant pressure point. The federal government wants new data centres to match their electricity demand with new renewable generation, backed by ” sensible firming arrangements “, which means reliable backup power for when renewable supply is low.

Most states and territories agree. However, Queensland and the Northern Territory want data centres to have the flexibility to use fossil fuels both as their primary supply and for firming.

From a cost and climate perspective, neither the federal nor state and territory governments have got this quite right. The use of gas and diesel, whether as primary or backup supply, is inconsistent with Australia’s climate objectives and keeping costs down . It also raises concerns about local air quality and community health.

Australia has committed to net zero emissions by 2050. We have an interim target of 62-70% reductions by 2035.

Without the right oversight, data centres could compromise this commitment. Data centres are being built by sophisticated, well-resourced operators. They are capable of firming their supply with batteries and other clean technologies rather than defaulting to fossil fuels.

Operated right, data centres could help the electricity grid work better, too. By shifting some computing tasks to off-peak times they could smooth the electricity demand peaks that increase costs and make the system less reliable.

Using water wisely

Water is the next pressure point. For instance, Sydney Water anticipates that data centre water needs, primarily for server cooling, could reach 250 megalitres a day by 2035.

The good news is that technologies already exist that can significantly reduce how much water they use. Closed-loop systems recycle the same water instead of letting it evaporate. Some new designs barely use primary water sources at all.

The National Australian Built Environment Rating System is developing a water standard for data centres to sit alongside its energy rating. To ensure efficient use of both electricity and water, data centres would be required to hit the top six star rating on both.

Location, location, location

Where data centres get built determines how much pressure they place on local resources, and how welcome they are in the communities hosting them. Around 160 already operate in Australia.

Most are clustered in Melbourne and Sydney for access to skilled workers, supply chains and low latency. That concentration is now pushing local power grids to their limits, putting pressure on network planning and potentially increasing costs for consumers.

Steering projects towards regions with spare capacity would ease pressure on the grid and use renewable power that might otherwise go to waste. These projects could also act as reliable buyers for new renewable developments, giving investors the revenue certainty they need to bring new capacity online.

At the same time, it will be important that this new demand does not compete with other kinds of industry for the same renewable energy supply, which could push up costs and slow the broader industrial transition away from fossil fuels.

Community benefits

Finally, the communities that host these facilities also deserve to benefit from their presence. That means genuine consultation and meaningful benefits as a condition of approval.

This could include community batteries or e-waste recycling programs to prevent critical minerals from entering landfill. It could mean engagement on where facilities are sited and the type of land they take up or upgrades to local water infrastructure.

In cities and regions, training pipelines could be established with local TAFEs and universities to help workers participate in the industry.

The good data centre future

Taken together, these measures describe a good data centre future. It has three key features.

First, data centre operators need to invest in new supplies of renewable energy rather than drawing on existing generation. Second, efficiency standards for energy and water must be mandatory rather than voluntary. And third, decisions about where data centres are located need to weigh resource use and community impact from the outset.

The legislative detail is still being drafted. Building in these guardrails now will ensure data centres minimise their strain on public resources and make a positive contribution to Australia’s economic outlook and energy transition.