Data Centers May Compromise Energy and Water Supplies Under New Guidelines, Experts Warn

Industry specialists are raising concerns that the government is falling short in its efforts to ensure that data centers transition to renewable energy sources and minimize water usage, especially as a wave of artificial intelligence companies prepare to set up in Australia.

Data centers are notorious for their heavy consumption of power and water, and projections indicate that by 2030, they will account for approximately 6% of the energy supplied by the grid.

In response, the government announced on Sunday night its intention to favor development proposals for data centers that adhere to five key expectations, which emphasize sustainable practices in both water and energy consumption.

The newly outlined guidelines also highlight a preference for operators who commit to enhancing worker training and offer affordable computing resources to local startups and researchers.

Globally, Australia ranks second only to the United States in terms of data center construction projects, reflecting a surge in investments worldwide to meet the growing computational demands driven by artificial intelligence innovations.

But experts say a lack of legislation could allow companies to “cut corners” and put the nation’s energy grid and water supply at risk.

“We don’t want these data centres to cannibalise other industries with how much energy it takes from the grid,” professor Seyedali Mirjalili, from the Centre for Artificial Intelligence Research and Optimisation at Adelaide’s Torrens University, told SBS News.

“And obviously, there should be mechanisms to make sure that they don’t impact our household water sources.”

What are the new expectations?

While the expectations aren’t law, they set out how the government will approach major data centre proposals.

These five expectations are:

• Prioritise Australia’s national interest
• Support Australia’s energy transition
• Use water sustainably and responsibly
• Invest in Australian skills and jobs
• Strengthen research, innovation and local capability

“The Albanese government expects data centres and AI infrastructure operators to underwrite new renewable power supply, pay their full share of new grid connectivity so costs are not passed to consumers or businesses, and support Australia’s energy transition through demand flexibility mechanisms,” a government statement said.

The expectations follow pressure from interest groups to ensure new data centres are environmentally conscious.

Concerns raised for energy and water

Unions, environmental groups and clean energy industry bodies joined forces in February to demand an energy and water-self-sufficient sector committed to upskilling workers.

Energy has been a particular focus as the nation struggles to roll out renewable sources fast enough to meet climate goals and supply fledgling green export industries.

Data centres consume about 2 per cent of grid-supplied electricity in Australia, but that share is expected to triple by 2030 due to the AI surge.

The International Energy Agency estimated in 2024 that a ChatGPT query required 2.9 watt-hours — roughly 10 times as much energy as a typical Google search. US research has also indicated it takes about half a litre of water for ChatGPT to process 20 to 50 queries.

OpenAI CEO Sam Altman has dismissed those figures, saying in a post on his blog last year that the average query used about 0.34 watt-hours, and used 0.000085 gallons of water.

Data centres worldwide consumed 1-2 per cent of overall power two years ago, according to Goldman Sachs Research, but this percentage will likely rise to 3-4 per cent by the end of the decade, an increase of 160 per cent.

In addition to bringing their own clean energy or storage to offset demand on the grid, operators will be expected to cover the full share of power connection costs and support network stability.

Energy Minister Chris Bowen said it was important to get the investment settings right to keep the electricity system secure and prices low.

“Data centres have great potential to support our grid and expand new renewable investment,” he said.

Sustainable water use will also be viewed favourably to protect local drinking supplies, with recycled and non-potable water use encouraged where possible.

Ascelin Gordon, a senior lecturer at RMIT University’s Centre for Urban Research, told SBS News the incoming data centres could have long-term impacts.

“There can be a big difference between what is proposed and what ends up rolling out on the ground 10 years later when the data centre’s actually up and operating as well,” he said.

“Firstly, all the power use and infrastructure to connect to the power grid is going to drive up power prices for everyone in the long term.”

There are several ways companies can mitigate their effect on energy and water supplies, such as using air cooling, which requires less water usage, Gordon added.

“There’s now current technologies that can drastically reduce water use, but I don’t think they are mandated in any way yet,” he said.

Striking a balance

A lack of government mandate means companies could take shortcuts or not implement best practices.

Mirjalili said that data centres with AI infrastructure are needed to keep Australian companies competitive against foreign firms.

“AI is now almost like electricity or water. It’s a utility now that you need it in pretty much any investment,” he said.

Given its importance in many Australian industries, Mirjalili said the focus should be on striking a balance between promoting innovation and watertight legislation.

“We don’t want to do too much regulation, regulate too much, and you slow down innovation, but at the same time, we don’t want to keep it too open and too loose so that companies start cutting corners and impact our existing infrastructure,” he said.

Gordon said that Australia could consider wider use of a star rating system for all data centres developed by the National Australian Built Environment Rating System (NABERS) to ensure they remain sustainable when built and in the long term. 

The Australian government now requires all data centres hosting federal agency workloads to have a NABERS five-star rating.

“It just seems to me crazy that we’re not making it an absolute requirement for new data centres to have a five-star rating, given we’ve got this fairly rigorous rating system up and running, rather than just having this expectation that data centres will use renewable energy and be efficient with their water use,” Gordon said.

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