NSW inquiry finds gaps in data centre approvals

The New South Wales Parliament’s inquiry has flagged shortcomings in the data centre approval process, saying it fails to assess the combined strain on water, electricity and local infrastructure.

Gaps in the current approval framework

The report says the existing system looks at each facility in isolation, even though multiple sites can together overload community resources.

It also notes the absence of a coordinated state strategy, warning that planning guidelines may undervalue future electricity demand and the limits of water supplies.

Investigators highlighted that clusters of data centres in the same region could intensify pressure on roads, transport links and other utilities.

According to the inquiry, the planning framework largely treats data centres as individual projects, ignoring cumulative effects that span neighborhoods and other industries.

Committee recommendations and political response

Rather than halt approvals, the committee urged the development of a data centre strategy and better coordination among regulators and stakeholders.

The document recommends the government review areas with high concentrations of facilities and earmark industrial land for housing or alternative uses.

It also calls for designated data centre and innovation precincts in locations where infrastructure capacity can support additional load.

To improve transparency, the report proposes a public data centre register that lists approved and proposed projects, their projected electricity and water use, and compliance with state guidelines.

It further recommends revising how local councils and residents are consulted during the approval process.

Developer NextDC and OpenAI, the maker of ChatGPT, are currently awaiting clearance for new facilities, while a smaller project was withdrawn after resident objections in a Sydney suburb.

The Public Accountability and Works Committee voted 6-1 to reject a moratorium on new approvals. Abigail Boyd, the sole dissenting member, warned that rapid AI-related expansion could strain electricity and water resources.

The debate gains urgency ahead of the state election scheduled for March 2027, with parties expected to address the resource implications of data centre growth.

Globally, McKinsey projects AI infrastructure investment could reach USD 7 trillion by 2030, which indicates the scale of the issue.

The New South Wales government must respond to the committee’s findings by February 5, 2027. They will need to tackle electricity supply, water availability and competition for industrial and housing land, which will shape future data centre assessments.