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Australia needs more than AI models and software to support the technology: it needs data centres, new electricity generation, reliable networks and firming, water supplies that can withstand local pressure, and approvals that account for community costs. The central challenge is to build that infrastructure quickly without shifting power, water or connection costs onto households and other businesses.
What infrastructure does Australia need to support AI?
AI services rely on physical facilities as well as computing systems. Data centres house the equipment that runs and stores digital services; their operation depends on electricity, connections to the grid, cooling and water. As facilities grow or cluster in particular places, the question is not just whether Australia can attract investment. It is whether generation, grid capacity, water systems and local approvals can keep pace—and who pays for the upgrades.
That makes infrastructure part of digital resilience. A plan that focuses only on investment and computing capacity would miss the resources those facilities depend on and the effects they can have where they are built.
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The Australian Energy Market Operator’s Step Change scenario, as reported by the Department of the Prime Minister and Cabinet in its 2026 consultation paper, projects data-centre electricity consumption in the National Electricity Market rising from approximately 5 terawatt-hours in 2025–26 to 34 terawatt-hours in 2035–36. In that scenario, data centres’ share of electricity supplied rises from around 3% to approximately 13%.
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This is a scenario forecast for the National Electricity Market, not a guaranteed outcome or a projection for every Australian electricity grid. It signals the scale of possible growth, but it does not by itself establish what demand will be or where new facilities and grid pressure will be concentrated.
Meeting additional demand reliably involves more than connecting a data centre to existing supply. New generation, appropriate firming and the ability to respond when the grid is under stress all matter. If the costs of new generation or network connections are shifted to other customers, infrastructure growth could affect energy bills beyond the facilities themselves.
Why water pressure is a local issue
The 2026 Commonwealth 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 is not a measure of the pressure on any one water utility or community.
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The same paper reports a Sydney Water estimate that data centres could use up to 20% of Sydney’s drinking water by 2035. This is a Sydney-specific estimate, not a national forecast. It illustrates why the location and concentration of facilities matter: a modest national share can coexist with substantial local demand on a utility or catchment.
Water impact depends on the source used, cooling efficiency, local conditions and resilience to drought and climate impacts. The consultation asks whether data centres should meet water-use performance metrics and whether a national hierarchy should prioritise non-potable or recycled water, with potable water as a last resort. Those are questions for consultation, not settled requirements.
What the government has proposed—and what is not yet law
On 15 July 2026, Prime Minister Anthony Albanese announced proposed Australian AI standards and said legislation was expected early in 2027. The September consultation sought input on thresholds, responsibilities and specific obligations. Its submission period closed on 9 October 2026. The standards remain proposals; the consultation does not establish their final form or legal effect.
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The Commonwealth proposal is for nationally consistent minimum requirements for large data centres and conditions for frontier AI training. The government has proposed that large data centres:
- Bring forward new renewable generation to offset their demand and provide appropriate firming.
- Offer demand flexibility, including reducing power use when needed to support the grid.
- Minimise costs for consumers and businesses, and pay a fair share of infrastructure costs.
- Use water efficiently, build resilience to drought and climate impacts, and report water use.
These proposals address different parts of the infrastructure challenge. New generation and firming concern supply and reliability; flexibility concerns how facilities behave during grid stress; cost allocation concerns who funds connections and upgrades; and water reporting and efficiency make resource use more visible. The consultation leaves details such as thresholds, metrics and responsibility for particular duties to be resolved.
How national standards would fit with local approvals
A national baseline would not replace state, territory or local planning and approval systems. Under the proposal, those governments would retain local responsibilities and could impose higher requirements. Existing processes also address planning, environment, energy, water, connectivity, foreign investment, national security and critical infrastructure.
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This division matters because a common national standard can set a floor, but local decisions still determine whether a particular site, water source or network connection is suitable. A facility’s effects may depend on local conditions and on what other developments are drawing on the same infrastructure.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What Australia expects infrastructure developers to contribute
The government’s five national expectations, issued in March 2026, connect infrastructure investment to broader public benefits. Developers are expected to:
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- Prioritise Australia’s national interest.
- Support the energy transition.
- Use water sustainably.
- Invest in Australian skills and jobs.
- Strengthen research, innovation and local capability.
The Department of the Prime Minister and Cabinet says these expectations operate alongside state, territory and local laws. They sit within the wider National AI Plan, launched on 2 December 2025, which aims to 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.
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What will determine whether the policy works?
The practical test is whether growth in AI infrastructure is matched by reliable supply, fair cost allocation and resource decisions suited to the places where facilities are built. The consultation puts those issues on the table, but its proposed standards still need specific, enforceable rules.
- Power and reliability: Requirements need to clarify how new demand is matched with generation and firming, and what facilities must do during grid stress.
- Costs: Rules need to make clear who pays for generation, connections, network upgrades and water infrastructure, so costs are not quietly transferred to other users.
- Water: Measures need to reflect water source, cooling efficiency, local availability, drought resilience and cumulative demand from facilities in the same area.
- Thresholds and responsibility: A national baseline needs clear thresholds and a way to assign duties among owners, operators, tenants and AI developers.
- Transparency: Reporting and compliance arrangements need to make it possible to assess resource use and whether obligations are being met.
Australia’s National AI Plan makes infrastructure and domestic capability part of its ambition. Whether that ambition strengthens digital resilience will depend on how the proposed standards translate into rules that align investment with electricity, water and local capacity—without making communities and other consumers absorb the costs.
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