Data centres face five-star Australian regulatory changes

There are more than 214 data centres in Australia, and this number is likely to grow as industry and individuals increasingly depend on AI and cloud computing. The cost, however, is an extraordinary demand on energy and the environment to power these centres, which require intense cooling systems to avoid shutting off.

While cities in the US and China lead the global established markets, Australia faces the same challenges as the world: how to expand this market in a way that balances environmental damage, carbon emissions, and goals for a net zero nation?

According to Morgan Stanley estimates, data centres presently use five per cent of the energy on Australia’s power grid, with an expectation this will boom to between eight and 15 per cent by 2030. For perspective, it takes four wind farms across 120,000 acres to generate the 1,050 MW (megawatts) of renewable energy that five percent of the energy grid equates to.

According to an ABC report in July last year, Origin provided power to nearly a third of all data centres in Australia at that time. The company spokesperson told ABC that building data centres in regional locations to enhance use of renewable energy. Is that the solution?

LSJ Online spoke to experts to appreciate the scope of data centre requirements, benefits, and whether the new federal regulatory measures will adequately address concerns over energy use, environmental sustainability, impacts on community and infrastructure.

Digitisation leads to demand

Data centres are an inevitable and requisite part of the digital economy. These centres hold computer servers, storage devices, and network hardware, all of which enable online services, streaming, and cloud storage and access.

In 2021, Cushman & Wakefield launched its inaugural report ‘Global Data Centre Market Comparison’, which tracked 38 markets and 1.6 GW (gigawatts) of data centres. That grew to 2.9 GW in 48 markets in 2021, 7.1 GW under development across 63 markets in 2023. This year, their report found that the ”operational capacity across the 97 markets tracked in this report now exceeds 40GW globally”, and “power availability remains the industry’s top concern.”

The top 10 APAC markets in the 2025 Cushman & Wakefield report puts Sydney at third behind Beijing and Shanghai, and Melbourne at five, just behind Johor. In terms of emerging markets, Brisbane is second to Auckland, with Perth and Canberra coming sixth and seventh respectively.

The heightened demand on energy that AI and machine learning require had massively driven the size of the industry, and its energy consumption. The flipside is that data centres generate enormous, and consistent, amounts of heat that can be harnessed for energy generation.

Europe is ahead of the world in recognising the potential of recovering heat from data centres. The European Union’s Digital Decade strategy, lays out their intention and means of making data centres climate neutral and energy efficient by 2030. Germany has regulated beyond EU measures, requiring that data centres sourced half of their electricity from renewable sources by 1 January 2024, and by 2027, their entire energy must be from renewable sources.

Australia foresees energy efficiency

Earlier this year, Herbert Smith Freehills hosted the National Infrastructure Seminar Series in Sydney. Their specific focus was on data centres and energy transition.

The firm’s Aaron White, Partner and Head of Technology, Media and Telecommunications, Asia, said: “One thing is clear, policy reform and changes in law and regulation will be needed for data centre infrastructure at scale for the AI reasoning era. It was fantastic to bring together industry leaders to discuss the opportunities and challenges that come with the convergence of digitalisation and the energy transition.”

Amongst the key takeaways later published by HSF were the claims that data centres are beneficial to local communities in contributing “to upgrades to water facilities and pipelines”, improve efficiency of energy usage through “saving 280,000 households’ worth of power every year”.

According to a 2024 report by research organisation Mandala, major data centres in Australia have committed to full reliance on renewables by 2030. The same report claimed 2 TWh of energy has been saved by data centres, since on-premise services would – it claims – use 67 per cent more electricity. The report was commissioned by businesses with a vested interest, including AirTrunk, Amazon Web Services, CDC, Microsoft and data centre provider NEXTDC, so claims ought to be viewed in that light.

Indeed, in October last year, University of Technology Sydney (UTS) academics claimed that the data centres not only require millions of litres of water to be cooled, the “enormous demand for energy translates into surges in carbon emissions and water use, and may place further stress on electricity grids already strained by climate change.”

Transition period between 2024 and 2026

Presently, the five-star NABERS requirement is limited to data centre providers listed on the new data centre panel established by the Digital Transformation Agency (DTA) data centre panel. Starting 1 July, the requirements extend to all data centre facilities, external or government-owned, operated, or contracted.

The energy efficiency regulations will demand that existing data centres operated by any entity achieve a NABERS Energy for Data Centres infrastructure rating. The government will monitor this transition, which began in January 2024 and extends to July 2026. Under the government’s ICT Sustainability Plan for data centres, these facilities must comply with emission thresholds under the National Greenhouse and Energy Reporting Scheme (NGER Act), source accredited Greenpower from renewable sources, maintain a 5-star NABERS rating or an equivalent environmental rating, and work towards a Power Use Efficiency (PUE) of less than 1.4.

In May 2023, the Digital Transformation Agency announced the new data centre panel, which replaced the panel established in 2014 to support compliance with the federal government’s Security of Critical Hosting Certification Framework. The panel also oversees compliance with international security and data sovereignty standards for data centres, the Australian Government Protective Security Policy Framework and the Australian Government Information Security Manual. The data centre panel is integrated into the DTA agency BuyICT.gov.au.

Peter Rymasz, Acting Branch Manager, Digital Sourcing at the DTA says, “The DTA is responsible for administering the Data Centre Panel 3 in line with the Head Agreement. Providers must supply evidence of compliance with applicable regulations, standards, industry codes, and methodologies upon written request from the DTA or a government buyer. This includes maintaining and holding  any required licences, authorisations, and certifications.”

The July transition: years in the making

Rymasz explains the new requirements were incorporated into the latest Data Centre Panel, established in May 2023. As part of the application process, data centre providers were required to submit the following information for each facility:

• NABERS rating (National Australian Built Environment Rating System)
• PUE (Power Usage Effectiveness) – must be 1.4 or lower
• WUE (Water Usage Effectiveness)
• CUE (Carbon Usage Effectiveness)
• Any LEED (Green Globes and Energy Star) ratings.

Providers also needed to demonstrate compliance with key ISO standards:

• ISO 14001 – Environmental management system standard for improving environmental performance
• ISO/IEC TS 22237-4:2018 – Covers environmental controls in data centres, including availability, security, and energy efficiency

Rymasz says, “These ratings and certifications are considered during the panel assessment process. Once approved, providers must continue to meet all relevant regulations, standards, industry codes, and methodologies as outlined in the Head Agreement.”

If a provider fails to meet its obligations under the Panel Agreement, the DTA has the authority to suspend or remove the provider from the Data Centre Panel.

NEXTDC is an independent data centre operator, headquartered in Brisbane, with an Australia-wide network of Tier III and Tier IV facilities catering to local and international organisations. Their 16 Australian facilities have achieved NABERS 5-star certification. Michael Helmer, Chief Risk Officer & Group Executive for Legal, Governance & Sustainability, explains that being more efficient, aligned with the NABERS requirements, makes fiscal sense.

“The less power that we use, the lower our PUE is and the less electricity we use, the less money we spend on electricity, the more efficient the data centre is, and the happier our customers are because they pay less,” he says.

“So, unlike quite a few industries where those things don’t necessarily align with each other, in the world of data centres, the more efficient you can be, the better your your NABERS rating is, and then the more business you attract, because you can be cheaper.”

Helmer gives the analogy of a bus versus a car. While one bus might consume more energy than one car, one bus could potentially take 50 cars off the road. Likewise, one data centre could mean hundreds of businesses are not attempting to run their own energy-hungry storage and networking systems which may or may not use renewables.

As for his own role as a lawyer within a data centre organisation, he explains: “The data is held on the computers of our customers, and their computers are in the racks, cages and data halls within our data centre, so we make that environment available. We provide uninterrupted power, perfect operating conditions, and a 24/7 continuity guarantee, which means that equipment is never interrupted, because otherwise people’s businesses go down.”

“My role is a start-to-finish process where we – as a legal team – are involved in the strategic planning of the purchasing of very specific sites. Data centre locations have numerous issues that need to be resolved, including everything from the safety of the locations regards chemicals, flight paths, power, and water availability.

“That planning involves buying the land, then being involved in the development of the land, construction projects, customer agreements, the maintenance processes relating to data centres – from cleaning it, to maintaining the generators, to buying all of the equipment to go in. And so a data consists of the shell, the electricity networks, the generators, the cooling infrastructure, the humidifying equipment; it’s a very active environment.

“We now have 16 fully operational data centres in Australia. We’ve expanded to Malaysia, and we are actively planning in other areas. It’s kind of like a hotel business, except in this case, the guests are the computers.”