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

Data centres are expanding rapidly in Australia — but what is the price?

People in Sydney’s Lane Cove suburb are worried about plans to build four more data centres nearby.

What many notice first about data centres is their enormous scale and the noise they make. Some describe them as sounding like a jet preparing for takeoff, while others complain about a sharp, high-pitched drone.

When Lucy* puts her child to sleep, she hears a steady hum. “I’ll hear it and think, ‘What is that? What is going on?’,” she says.

Then she remembers the sound is coming from a data centre just 350m (0.2 miles) from her front door in the sought-after Lane Cove suburb on Sydney’s lower north shore. Four more are also planned for the local industrial park.

Australia has rapidly emerged as a worldwide hub for data centres, with investors drawn by the country’s plentiful clean energy, natural gas reserves and land to run and store their systems.

Earlier this year, OpenAI chief executive Sam Altman said Australia could become the world’s data centre capital, if it chose to.

The country is already moving in the direction big tech wants. Australia has 162 data centres, with another 90 planned, and an estimated more than A$155bn (£80bn) in investment lined up.

If it gets the green light, one of the world’s largest data centres will be built in western Sydney. At one gigawatt, it is expected to become Australia’s biggest single energy consumer.

And in Marsden Park, also in western Sydney, the largest data centre in the Southern Hemisphere is already being built just 100m from a local community.

But as more Australians end up living beside data centres — raising worries about water, energy and the environment — many are questioning whether taking part in the artificial intelligence (AI) race is worth it.

Data centres, such as this one in Lane Cove, are becoming a more common sight in Australia.

They have been vital to the digital economy since the internet arrived.

Originally, they were built to process and store information for services such as email, online banking and cloud computing. But everything shifted after 2022, when ChatGPT launched and AI surged in popularity. That sparked a sudden push to build more data centres to support the technology.

The placement of these large, windowless buildings packed with servers and cables also became crucial to latency — the time it takes for data to move from one point to another.

Delays in areas such as air traffic control, robotic surgery or even Netflix would not be acceptable today, says Belinda Dennett, chief executive of Data Centres Australia.

Australia has about 13.6 million AI users each month, making them the sixth most active users of the technology in the world.

Experts also say having data centres in Australia will make it easier to build more homegrown AI companies.

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

Australia is also appealing to overseas investors because “we’ve got availability of land, we’ve got political stability, and we’ve got the Five Eyes security alliance,” Dennett says.

“We’ve also got a skilled workforce, a pretty stable energy grid, and an abundance of renewable energy potential.”

Jon Whittle says the government has no option but to embrace data centres

Leading business specialists and economists say Australia’s data centre boom over the past couple of years likely helped the country avoid recession.

Jon Whittle, a former director of the digital research centre at the national science agency CSIRO and now a prominent voice on AI and business, agrees. He says the government has little choice but to keep backing investment.

“There’s some very serious considerations around this, but my main message would be we need to lean into it,” he says.

Residents in Sydney’s lower north shore fear the national park and river could be affected by a new cluster of data centres.

But top energy and environmental experts say Australia has limited ability to meet the huge energy and water needs of new data centres.

The Australian Energy Market Operator says data centre electricity demand could triple nationwide by 2030.

Without major new renewable generation and storage, data centres could drive power prices up by 26% in New South Wales (NSW) by 2035, according to the Climate Council, an independent non-profit advisory group.

Because data centres require constant power at a scale and speed that wind and solar cannot provide, there are fears the current boom will lead to a new wave of coal and gas power stations.

A recent Greenpeace Australia Pacific report found that no data centre operator it examined adequately backed up its claim that it was helping drive Australia’s renewable energy growth.

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

Just a 90-minute drive from Sydney’s central business district, Australian-owned data company Cloud Carrier plans to build three gas-fired power stations to supply an existing data centre and two more in the future.

And if energy demand puts too much strain on the grid or there is a blackout, data centres like the one in Lane Cove will depend on backup diesel generators.

But NSW Treasurer Daniel Mookhey says Australia’s data centre investment surge is happening alongside a renewable energy boom.

“We don’t see the two [as] 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.”

He says the new private investment will support renewable energy and create “new industries that are likely to employ future generations”.

A data centre in Artarmon, Sydney. These huge windowless buildings use vast amounts of energy and water.

Data centres also use huge volumes of water — some as much as 40 million litres a day, equal to 80,000 households — to stop their servers from overheating. In a country prone to drought, that is a potentially major issue.

According to the Water Services Association of Australia (WSAA), Sydney will already need to boost its drinking water supply over the next five to 10 years to serve its growing population.

But if that water goes to data centres, households are likely to bear the cost of finding water elsewhere, such as through desalination, which is more expensive than conventional sources.

Sydney Water, Australia’s biggest water utility, says data centres could account for up to 25% of Sydney’s drinking water by 2035.

In July, Prime Minister Anthony Albanese announced a new legal requirement for “large-scale” data centres to underwrite power supplies, restrict water use and pay for any additional water infrastructure required.

But the prime minister also told media that the law, due to be introduced in 2027, would apply only to new proposals, not projects already built or under construction.

In response, environmental and community groups are calling for a halt to 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, says.

“But can we actually do that sustainably or is it going to set us back in terms of net zero and our water storage targets?”

At a rainy Monday night town hall hosted by Greenpeace Australia Pacific at Lane Cove library, locals said they had never been consulted about their area becoming a data centre hub.

One of the proposed centres in the cluster would be 16m from the nearest home and 160m from a local primary school.

Flood also says that if the four data centres are approved in the industrial park, 50% of the current businesses would need to relocate — taking their jobs with them.

Felipe Tanaka, 40, manages a business in the industrial park and has been told he must move because of a data centre.

“We never knew that something like this would happen,” Tanaka tells the BBC. “Thousands of jobs are going to be gone from this area in the next few years.”

Although a large data centre can employ more than a thousand people during construction, research shows that figure falls to around 100 jobs once it is operating.

“Most of our 300 to 400 workers here are locals,” Tanaka says. “Having to move will probably see half of my employees gone.”

NSW Treasurer Mookhey says the jobs data centres create come not from the people working inside them, but from those using them.

“When Microsoft and Amazon do business here in NSW, it’s pleasing to see they are committed to providing some of their more skilled operations and locating them here,” he says.

But it is unclear what other skilled jobs might be created, and what the data centres will actually be used for. As some critics have noted, many AI users are creating cat GIFs, which consumes the same amount of energy as running a microwave for an hour.

“They’re telling us this is essential... that we need to have these centres in our neighbourhood but they’re not saying what it’s for,” Flood says.

“When our drinking water, energy and land is being used for generative AI slop, that is not giving any value back.”