New South Wales has introduced a new data centre policy framework that promises faster planning approvals for projects meeting tougher environmental and resource-use standards, while moving towards requiring developers to bear the cost of additional electricity and water infrastructure.
The NSW Data Centre Policy Framework, released alongside detailed Data Centre Guidelines, is intended to give developers greater certainty while addressing the impact of rapidly growing data centre demand on the state’s electricity, water and other infrastructure. The framework is built around three pillars: planning guidelines for data centre applications; regulatory reform to ensure equitable recovery of energy infrastructure costs; and an IPART review of the cost of providing water services to data centres.
The policy comes at a time when the state’s data centre pipeline continues to expand. The government estimates that around 60 data centres are operating in the state, while 19 projects with a combined value of AUD 50.3 billion were in the State Significant Development planning pipeline as of July.
However, the government is also explicitly questioning how much of the headline pipeline will actually be built. It says all stakeholders consulted for the framework agree that there is a significant amount of “phantom” and speculative demand in data centre connection pipelines. An Oxford Economics estimate cited by the government suggests that six out of every seven megawatts of data centre connection requests could be phantom demand, while utilities told the government that only around 20 percent of data centre applications in their connection pipelines were likely to proceed.
Faster approvals for compliant projects
The central incentive for developers is a more structured and potentially faster route through the planning system.
The government will establish a dedicated data centre “concierge” function within the Department of Planning, Housing and Infrastructure, alongside pre-assessment support that can begin before a site has even been selected. The service will advise proponents on site selection, assessment requirements and potential issues before they submit a request for Secretary’s Environmental Assessment Requirements.
For projects that address the guidelines, the government has committed to providing SEARs within two months and to a development application assessment process taking no longer than 75 days while the application is in state government hands. Dedicated post-consent staff will also be assigned to data centre projects.
The 75-day target broadly aligns NSW with the accelerated planning approach already being used in Victoria, where the Development Facilitation Program has been used to fast-track major data centre projects. The Victorian government has cited the 75-day approval of NEXTDC’s Port Melbourne facility as an example of the program in action.
NSW’s approach is therefore less a blanket fast track for data centres than a conditional exchange: developers that meet the state’s requirements get greater certainty and a faster assessment pathway.
The guidelines set out six principles covering environmental and efficiency standards, protection of consumers and communities from additional costs, funding of new water and energy supply, local community infrastructure, investment in future industries and workforce development.
Developers to pay for new infrastructure
The most consequential change may sit outside the planning process. Under the second pillar of the framework, NSW intends to reform the regulatory arrangements governing large new electricity loads so that the costs and risks of additional energy infrastructure required to support data centre growth are borne by the parties creating the need for that investment rather than existing electricity consumers.
The government says data centre demand is expected to drive new and accelerated transmission investment, while current regulatory arrangements do not adequately account for that growth. Interim commercial arrangements will remain in place while longer-term reforms are developed. The policy also envisages new access arrangements that would allow the government to manage the growth of data centre electricity demand more proactively.
The water side is being treated in a similar way. NSW is commissioning the Independent Pricing and Regulatory Tribunal to review whether the state’s water pricing framework adequately recovers the costs of servicing data centres. The government says data centres can be more expensive to service because of their large water requirements, higher reliability requirements and the location of available water resources.
Tougher efficiency requirements
The detailed guidelines establish specific performance measures rather than relying entirely on broad sustainability principles. For energy and water efficiency, new projects are expected to design for either a power usage effectiveness (dPUE) of 1.25 or lower combined with water usage effectiveness (dWUE) of 1.0 or lower for potable water, or dWUE of 1.6 or lower for non-potable water; alternatively, projects can target a dPUE of 1.3 or lower with dWUE of 0.44 or lower.
Water-intensive cooling systems face another significant requirement. Projects using evaporative, adiabatic or other open-loop cooling are expected to use recycled water for all cooling operations, or have an agreement with their water utility to transition to rainfall-independent water supply.
The guidelines also encourage developers to consider brownfield sites with existing energy and water infrastructure and locations away from sensitive uses such as homes and schools. The government says such locations can reduce the complexity associated with data centre development.
Framework for a rapidly changing market
NSW is also acknowledging that the industry’s requirements are changing quickly. The government will establish an Industry Advisory Forum to provide ongoing input into the framework and says it will review the guidelines annually, or sooner if material changes in the data centre operating environment require it. Further work is planned on environmental standards, renewable fuels and alternative backup power, forecasting data centre demand, matching wind generation and grid-scale storage with customers, and developing skills and training centres.
The framework follows an earlier NSW consultation process and is explicitly aligned with the Federal government’s Expectations of Data Centres and AI Infrastructure Developers, published in March.
It also comes as the state is attempting to reconcile two competing realities: data centres represent a highly mobile source of investment, but their electricity and water requirements can impose costs on infrastructure systems designed primarily around conventional demand.
NSW’s guidelines acknowledge that tension directly, noting that data centre investment decisions can move between jurisdictions and that the state’s assessment process therefore needs to be efficient while maintaining high environmental and community standards.
Industry body Data Centres Australia (DCA) welcomed the framework, with chief executive Belinda Dennett saying the incentive-based model provided the right balance between raising standards and maintaining investment certainty.
“These guidelines set a high bar, and we welcome that it is matched by real incentives to meet it,” Dennett said.
DCA also welcomed the fact that projects unable to meet every guideline will retain a pathway through the planning system, arguing that data centres differ in their workloads, business models and the impact individual measures may have on their operations.
The NSW government’s approach consequently represents more than a set of environmental guidelines. It establishes a clearer bargain for the sector: projects that can demonstrate high standards and minimise their impact on shared infrastructure can expect a more predictable path to approval, while the costs associated with creating new power and water demand are increasingly being shifted back towards the developers creating that demand.