Land availability, connectivity, customers and capital have traditionally been central to data centre site selection.

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They remain important. But in Australia’s rapidly expanding data centre market, they are no longer enough. Power and transmission capacity, water, planning and environmental constraints, infrastructure costs and community expectations can all affect whether a proposed site is commercially viable.

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The best engineering location is not necessarily the best investment location. Infrastructure availability, approvals, government policy and future regulatory risk need to be considered alongside the physical attributes of the site — and before major investment decisions are made.

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Start with power, not simply land

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The scale of the challenge is significant. The Australian Energy Market Operator (AEMO) forecasts that data centre electricity consumption across the National Electricity Market (NEM) could increase from approximately 5 TWh in 2025-26 to 34 TWh by 2035-36. On that forecast, the sector’s share of grid-supplied electricity would increase from around 3 per cent to approximately 13 per cent.

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The investment pipeline is also substantial. Deloitte Access Economics was tracking 33 Australian data centre projects worth a combined $104 billion in August 2026. At the end of March, eleven large projects representing 5.4 GW of maximum demand were progressing through the NEM transmission connection process.

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These figures measure different stages of development and should not be read as equivalent measures of committed capacity. But they illustrate the scale of potential investment and electricity demand.

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For investors, this makes power a fundamental site-selection issue. The question is not simply whether a transmission line or substation is nearby. Investors need to understand whether the network can supply the required maximum demand, when capacity will be available and what infrastructure will be required to connect it.

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The institutional framework varies by jurisdiction. In the NEM, AEMO, the Australian Energy Market Commission, the Australian Energy Regulator and relevant network service providers can all have a role. Western Australia operates under a separate framework, with AEMO operating the Wholesale Electricity Market and state institutions performing policy and regulatory roles. Across these markets, connection queues, substation capacity, transmission constraints, system strength, reliability, curtailment risk and network augmentation can all affect project viability. Where significant network upgrades are required, the additional cost and time can materially alter the investment case.

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The cost of additional infrastructure matters

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The Commonwealth’s proposed national standards for large data centres make this increasingly important. A Consultation paper released this month proposes requiring large data centres to bring forward new renewable generation to fully offset their energy demand, supported by appropriate firming, provide demand flexibility and operate in ways that minimise costs for other electricity consumers. The standards are still being developed and are not yet operative law, but provide a clearer indication of the direction of policy.

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New South Wales is also progressing reforms to address the cost of additional electricity infrastructure required to support data centre growth. The reforms are intended to ensure those costs are recovered from data centre operators rather than other electricity customers.

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Investors therefore need to examine not only whether electricity can be secured, but on what terms. This may require long-term electricity procurement, new generation or storage, network augmentation and demand flexibility.

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Water needs its own strategy

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Water can also materially affect site viability. Usage depends on cooling technology, design, climate and operating configuration, and some systems can substantially reduce direct water consumption. Investors need to understand whether sufficient supply is available, whether recycled or non-potable water can be used and what infrastructure will be required. Wastewater, stormwater and drought resilience can also be relevant.

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Water is also part of the emerging national regulatory framework. The Commonwealth’s proposed standards are intended to address the water impacts of large data centres alongside energy, infrastructure costs, location and community impacts. A credible water strategy should therefore be developed during site assessment, not after the project design has been substantially settled.

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Australia is one market, but not one investment environment

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Planning and approval pathways vary between jurisdictions. A project may qualify for a State Significant Development pathway in New South Wales but face a different process in Victoria, Queensland or Western Australia. Environmental laws, water regimes, biodiversity requirements, heritage protections and local planning controls also differ.

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The Environment Protection and Biodiversity Conservation Act 1999 (Cth), for example, may be relevant where a project affects protected matters. Assessment can also extend beyond the facility itself. Transmission lines, substations, roads, water infrastructure and other supporting works may create their own requirements.

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Commonwealth environmental approval requirements are also undergoing significant reform. Four new National Environmental Standards were made in August 2026 and are intended to apply when new approval tests commence, on or before 1 December 2026. Projects with longer development timelines therefore need to consider the framework likely to apply when assessment occurs.

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A site may have relatively few environmental constraints while the infrastructure needed to make it operational encounters significant ones. Investors comparing Australian sites therefore need jurisdiction-specific due diligence. The infrastructure and approvals pathway should be mapped, including decision-makers, sequencing, expected timeframes and relevant policy or regulatory developments.

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Environmental and land constraints should be identified early

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Biodiversity, vegetation clearing, heritage, Aboriginal cultural heritage, contaminated land and surrounding land uses can all affect development. Noise, backup generation, fuel storage, traffic and construction impacts may also need to be considered.

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Community expectations matter too. Large data centres can bring investment, construction activity and employment, but can also generate concerns about electricity and water use, noise, land use and infrastructure costs. Social licence is also becoming an important consideration for the sector. Industry leaders have emphasised the need to explain why data centres are needed, demonstrate how their benefits are shared with local communities and engage communities early in the development process.

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Identifying these issues early provides more options. Once land has been acquired and a design substantially developed, responding to an unforeseen constraint can be much more costly.

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Map today’s pathway and tomorrow’s policy

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Regulatory due diligence should not be limited to the rules currently in force. The Commonwealth is developing nationally consistent mandatory standards for large data centres covering energy, water, infrastructure costs, location and community impacts, with legislation intended in early 2027. The standards are intended to complement existing state and territory planning and approval processes.

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States and territories are also refining their approaches. New South Wales, for example, has developed a Data Centre Policy Framework incorporating planning guidelines, proposed electricity network cost-recovery reforms and a review of water infrastructure cost recovery.

 

For projects with long development periods, this raises an additional question: what regulatory environment is likely to apply during approval, construction and operation?

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This does not require predicting every future policy decision. It means identifying credible policy directions and testing whether the investment remains viable under reasonable scenarios. A project dependent on one regulatory assumption may carry more risk than one that remains viable across several plausible outcomes.

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Regulation is part of site selection

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The strongest projects will treat regulatory and infrastructure analysis as part of site selection, before land is acquired, rather than as an approvals exercise undertaken later.

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Before committing major capital, investors should understand:

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• zoning and the likely approval pathway;

• grid capacity, connection timing and likely augmentation costs;

• electricity procurement options;

• water availability and infrastructure requirements;

• Commonwealth and state environmental risks;

• biodiversity and cultural-heritage constraints;

• community and local-government considerations; and

• regulatory developments likely to affect the project.

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These issues are interconnected. New transmission infrastructure can create additional environmental requirements. A cooling strategy can change water requirements. A planning constraint can affect facility design and energy demand. A policy change can alter infrastructure costs.

 

The investment question is therefore no longer simply: Can a data centre be built on this land?

 

The better question is: Can it be built and operated here with secure power and water, achievable approvals, manageable infrastructure costs and regulatory risks that remain commercially manageable over the life of the investment?

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In Australia’s next phase of data centre development, answering that question early may be the difference between securing a valuable long-term infrastructure asset and acquiring a site that works on paper but not in practice.

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Note: This article forms part of a series examining Australia’s changing data centre investment environment. It reflects legislation, government policy and regulatory guidance current as at 30 September 2026. Requirements for individual projects will vary depending on factors including jurisdiction, location, scale, ownership, operating model, infrastructure needs and customers. This article provides general information only and should not be relied upon as legal advice.

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