Thirst for Power: The Datacentre Surge and Australia’s Strained Water Supply
As Australia surges into the AI era with a wave of datacentre investments across Sydney and Melbourne, experts warn that these colossal projects could squeeze an already tight drinking-water system. Projections show that Sydney’s datacentre water demand may outstrip Canberra’s entire drinking-water volume within ten years, underscoring the scale of the challenge.
Melbourne is positioning itself as Australia’s datacentre capital, backed by a $5.5 million state effort. Yet the hyperscale projects already in play would push the city’s water needs beyond those of most of its top 30 non-residential customers combined, highlighting a looming gap between growth and supply.
Tech giants, including OpenAI and Atlassian, are championing Australia as a global hub for data processing and storage. However, with roughly 260 datacentres in operation and many more in the pipeline, concerns are rising about the impact on drinking-water resources.
Sydney Water estimates that by 2035, the datacentre sector could require as much as 250 megalitres of water daily. That volume exceeds Canberra’s total annual drinking-water supply, underscoring a stark potential conflict between growth and water availability.
Cooling the vast arrays of servers consumes substantial water, depending on the cooling technology used. Professor Priya Rajagopalan of RMIT’s Post Carbon Research Centre explains that evaporative cooling wastes water through evaporation, while sealed systems (which face no evaporation loss) demand massive cooling water to operate effectively. As datacentres scale up their computing power, server racks become denser and generate more heat, driving a shift from traditional air cooling toward water-based cooling methods.
Water usage in datacentres varies widely. Some operators, like NextDC, are moving toward liquid-to-chip cooling, which targets the processor or GPU directly rather than cooling the entire room. NextDC reports a preliminary deployment with room to expand for ultra-high-density setups, aiming for greater processing power without a proportional rise in overall power consumption. Their modeling suggests possible improvements in power usage effectiveness (PUE) to as low as 1.15.
Datacentre operators gauge sustainability with two metrics: water usage effectiveness (WUE) and PUE. WUE measures annual water use relative to IT energy consumption, while PUE assesses energy efficiency. For example, a 100MW datacentre that uses about 3 megalitres per day yields a WUE near 1.25; the closer to 1, the more efficient. Some jurisdictions have minimum standards; Malaysia, for instance, has recommended a WUE of 1.8. Yet even highly efficient facilities can demand large water and energy quantities when scaled up.
NextDC’s latest reported PUE was 1.44, up from 1.42 the year before, reflecting changing client activity and the expansion of new facilities, according to the company.
Sydney Water is continuously reviewing its figures on datacentre water use and is exploring climate-resilient and alternative water sources, such as recycled water and stormwater harvesting, to prepare for future demand. Each proposed datacentre connection undergoes a local network capacity assessment, with upgrades potentially funded by operators if more servicing is required.
In Victoria, Melbourne Water noted in its 2026–2031 pricing submission that hyperscale datacentre operators have applied for connections whose instantaneous and annual demands exceed those of nearly all of the state’s top 30 non-residential customers. As a result, Melbourne Water said these forecasts and expenditure plans did not account for such consumption and has requested upfront capital contributions from the datacentre companies to prevent costs from falling on the broader customer base.
Greater Western Water reported 19 datacentre applications in its queue, according to documents obtained by the ABC and cited by The Guardian.
The Concerned Waterways Alliance, a coalition of Victorian community and environment groups, voices concern about diverting large volumes of drinking water to cool servers when water resources are already stretched. Spokesperson Cameron Steele argues that datacentre growth could push Melbourne toward greater reliance on desalinated water and reduce environmental-flow water, with community costs passed along to residents. The alliance is urging a ban on using drinking water for cooling and advocating mandatory public reporting of water use for all centres, alongside a pivot to recycled water where possible.
In hotter climates, cooling needs intensify, driving higher energy and water use. Danielle Francis of the Water Services Association of Australia notes that there is no universal standard for datacentre consumption; local conditions—such as land availability, noise restrictions, and water access—shape decisions. Balancing the interests of residential, non-residential, and environmental users remains essential, especially as more datacentres cluster in proximity to one another.
One notable project is a Sydney site at Marsden Park: a 504MW datacentre spanning 20 hectares with six four-storey buildings, touted as the largest data campus in the southern hemisphere. CDC, the developer, reports a 95.8% renewable-energy share across its datacentres, a PUE of 1.38, and a WUE of 0.01, achieved through a closed-loop cooling system that eliminates ongoing water draw and evaporation. CDC describes this approach as a tailored Australian solution designed to preserve water while maintaining thermal performance and setting a high industry standard.
Planning documents for the Marsden Park project show continuing community concerns about the project’s scale and proximity to vulnerable populations. In a June correspondence, Peter Rophail, acting chief executive of the western NSW health district, warned that the proposal exposed untested environmental risks and could pose unreasonable health hazards under extreme heat events, underscoring ongoing tensions between rapid datacentre expansion and local wellbeing.
But here’s where it gets controversial: should this level of water use be acceptable as Australia builds a digital future, or should stricter limits and more aggressive use of recycled water become mandatory to protect environmental flows and household supplies? As the debate intensifies, the question becomes not only how much power these centres need, but how much water the nation can spare without compromising communities and ecosystems. What’s your take on prioritizing water sustainability in the race for data sovereignty and AI leadership?
