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Hungry data centres could break energy records by 2040

May 29, 2026

daa centres — Data centres are expanding rapidly in Australia and are consuming more power and water as they do. -AAP Image

Artificial intelligence hubs are expanding so rapidly they could consume almost one third of a state's electricity by 2040, in addition to straining water supplies.

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But Australia could address their potential environmental risks by introducing a data centre regulator, a committee has heard, and enforcing strict requirements for renewable energy generation.

Electricity, climate and business groups issued the advice at the NSW government's data centre inquiry on Friday, which also heard Australia still had an opportunity to prevent the bad outcomes seen in some US states.

The government launched its inquiry in January to investigate whether NSW is prepared to handle the environmental and economic demands of data centres that have boomed following the rise of AI tools.

Their rapid growth in Australia had become a once-in-a-generation challenge, Ausgrid customer group executive Fatima Bazzi said, as tech companies inundated the energy distributor with applications.

Data centres used a modest amount of the grid's energy now, she said, but could put huge demands on it in future.

"Today they account for approximately four per cent of operational load in NSW. By 2040, we predict that to rise to between 17 and 30 per cent," she said.

"That kind of growth in that time frame is unlike anything we have ever seen."

Rules for their energy supply were not keeping pace with demand, Ms Bazzi said, and were leading to delays and poor outcomes.

"We need a co-ordination body that has decision-making rights. At the moment everyone has a decision-making right for a part of the puzzle," she said.

Regulations for data centres should include strict requirements around renewable power, Clean Energy Council market operations general manager Martin Kennedy said.

"Data centres are exactly the kind of customer that many renewable energy projects need," Mr Kennedy said.

The data centre boom could boost renewable resources, Business Council of Australia policy executive director Wendy Black said, although quotas and timelines needed to be practical.

Australia could consider regulations introduced in Ireland, she said, which mandated 80 per cent renewable energy for data centres to be built within six years.

"If you are too strict about saying, okay, it's 100 per cent renewables now and you've got to build it now, that is just not feasible," she said.

"You've got to be realistic here and be pragmatic about what can and can't be done."

Australia could also learn vital lessons from the US, Ms Black said, that was experiencing a data centre backlash based on their high energy and water demands.