Australia needs more than advanced chips and software to support AI: it needs data centres, reliable electricity, new generation and storage, water supplies that can withstand local pressure, and planning systems able to assess where facilities belong. The Commonwealth is developing proposed national standards to address those demands, but the consultation closed on 9 October 2026 and the proposals are not yet settled law.
Why AI infrastructure is also a resilience issue
AI services depend on physical infrastructure. Data centres house the computing equipment; electricity generation and networks supply it; firming and storage help balance variable supply and demand; and water may be needed for cooling. Local planning and approval processes determine where facilities can be built and how they interact with surrounding communities and infrastructure.
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That makes the infrastructure question broader than whether Australia can attract investment. A data centre can support domestic AI capability, but its demand for power, water and network connections also raises questions about reliability, costs and the local effects of clustering facilities. Digital resilience depends in part on whether the systems supporting these services can meet demand without shifting unmanaged costs or pressures to other users.
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The Department of the Prime Minister and Cabinet’s September 2026 consultation paper reports an Australian Energy Market Operator (AEMO) Step Change scenario in which data-centre electricity consumption in the National Electricity Market (NEM) rises from approximately 5 terawatt-hours (TWh) in 2025–26 to 34 TWh in 2035–36. In that scenario, data centres’ share of electricity supplied grows from around 3% to approximately 13%.
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These are scenario figures for the NEM, not a guaranteed outcome or a forecast for every Australian electricity grid. They indicate the scale of a possible increase, not a certain future. Even under a scenario, that much additional demand makes the timing and location of new generation, network connections and firming important.
Why the national water share can hide local pressure
The same September 2026 consultation paper estimates that Australian data centres used 5.5 gigalitres of water for cooling in 2025, around 0.04% of total industrial water use. That national share does not show how demand is distributed between utilities or catchments. A smaller national proportion can still be significant where facilities cluster or local supplies are constrained.
For Sydney, the paper reports Sydney Water’s estimate that data centres could use up to 20% of the city’s drinking water by 2035. This is a Sydney-specific estimate, not an Australian-wide projection. It illustrates why policymakers are considering both cooling efficiency and which water sources facilities use, especially in areas facing drought or other climate impacts.
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What the Commonwealth is proposing
The Commonwealth’s September 2026 consultation sought views on nationally consistent minimum requirements for large data centres and conditions for frontier AI training. The proposals aim to attract infrastructure investment while addressing its effects on electricity, water, consumers and communities. The consultation closed on 9 October 2026; its proposals should not be read as requirements already in force.
Power, reliability and costs
The government proposes that large data centres bring forward new renewable generation to offset their demand, provide appropriate firming, and offer demand flexibility so they can reduce or shift consumption when needed. It also proposes that operators minimize costs for consumers and businesses and pay a fair share of infrastructure costs. Those issues include who pays for generation, connections and any required network upgrades, and how obligations will work in practice.
In a 15 July 2026 announcement, Prime Minister Anthony Albanese said the proposed standards would include an obligation for large data centres to underwrite new power supply, pay their full share of connection costs, reduce power when needed to strengthen the grid, and use water as efficiently as possible. The consultation was subsequently seeking input on thresholds, responsibilities and the details of potential obligations. The July announcement described the government’s intended direction, not a final legal framework.
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Water use and reporting
The proposals include using water efficiently, building resilience to drought and climate impacts, and reporting water use. The consultation also asked whether data centres should meet water performance metrics or ratings and whether a nationally consistent hierarchy of water sources should prioritize non-potable or recycled water, with potable water as a last resort. These were questions for consultation, not adopted rules.
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The Commonwealth proposes a national baseline for large data centres while leaving states and territories responsible for local planning and approvals. States and territories could set higher requirements. A national baseline could make minimum expectations more consistent, but it would operate alongside existing processes rather than replace them.
Depending on the project, approvals and requirements may cover planning, environmental effects, energy, water, connectivity, foreign investment, national security and critical infrastructure. Local decisions remain important because electricity capacity, water availability and community impacts vary by location. A common national framework cannot by itself resolve those local trade-offs.
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The government’s wider expectations for infrastructure investors
In March 2026, the government set out five expectations for developers: prioritize Australia’s national interest; support the energy transition; use water sustainably; invest in Australian skills and jobs; and strengthen research, innovation and local capability. The department says these expectations work alongside state, territory and local laws.
They align with the National AI Plan, launched on 2 December 2025. The plan has three goals: build smart infrastructure and domestic AI capability while attracting global investment; spread benefits through adoption, workforce support and improved public services; and keep Australians safe through regulatory frameworks and responsible practices. Together, the plan and the expectations frame AI infrastructure as an investment that should contribute to wider national capability, not only provide computing capacity.
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What will determine whether the framework works?
The practical test is whether the eventual rules make responsibilities clear and match obligations to the pressure a project creates. Several details matter:
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- Additional power and reliability: whether new generation is genuinely brought forward for data-centre demand, how firming is provided, and what operators must do during grid stress.
- Fair cost allocation: whether project owners pay for the generation, connections, network upgrades and water infrastructure they require, rather than passing costs to other consumers.
- Water suited to the location: whether cooling systems use water efficiently, whether recycled or other non-potable supplies are available, and how drought conditions and cumulative local demand are considered.
- Clear thresholds and duties: which facilities count as large, whether requirements account for cumulative portfolios, and whether duties fall on the owner, operator, tenant or AI developer.
- Transparency and accountability: what operators must report, how compliance will be checked, and what consequences follow if obligations are not met.
The consultation paper sought input on these policy choices. The material available as of October 2026 does not establish final thresholds, compliance mechanisms or the eventual legal form. The Prime Minister’s July announcement said legislation was expected in early 2027; the final requirements will depend on what is subsequently decided and enacted.
What the available figures do—and do not—show
| Measure | Reported figure | Scope and qualification |
|---|---|---|
| Data-centre electricity consumption | Approximately 5 TWh in 2025–26, rising to 34 TWh in 2035–36 | AEMO Step Change scenario for the NEM, as reported by the Department of the Prime Minister and Cabinet in its 2026 consultation paper; not a guaranteed outcome or national all-grid total. |
| Share of electricity supplied | Around 3%, rising to approximately 13% | Shares associated with the same NEM scenario and years, as reported in the 2026 consultation paper. |
| Cooling water use | Estimated 5.5 gigalitres in 2025, around 0.04% of total industrial water use | Australian data-centre cooling use, as estimated in the Department of the Prime Minister and Cabinet’s 2026 consultation paper. |
| Potential Sydney drinking-water use | Up to 20% by 2035 | Sydney Water estimate as reported in the 2026 consultation paper; specific to Sydney, not a national estimate. |
These figures describe different things: a scenario for NEM electricity demand, a national estimate of cooling water, and a city-specific water projection. They should not be combined into a single national measure of infrastructure impact. The cited material establishes a clear policy focus on power, water and governance; it does not quantify subsea-cable exposure, domestic backbone connectivity, cloud concentration or state-by-state grid constraints.
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