Image: NSW Industry and Trade Minister Anoulack Chanthivong. Courtesy CEDA
As demand for the infrastructure underpinning artificial intelligence (AI) accelerates, regional NSW could become part of the solution. The opportunity lies not simply in moving data centres out of Sydney, but in matching the right facilities with energy, fibre, water and land, and ensuring the investment leaves lasting benefits for the communities that host them.
New South Wales has no shortage of companies wanting to build the vast digital infrastructure required to power artificial intelligence and the cloud economy.
But as electricity demand rises and established data centre precincts in Sydney face increasing constraints, another question is coming into focus: could more of that investment find a home in regional NSW?
The answer emerging from CEDA’s Data Centres and NSW’s Digital Future event in Sydney last month was a qualified yes.
Changing AI workloads, new renewable generation, battery storage and the availability of industrial land could open opportunities beyond metropolitan Sydney. But simply putting a data centre near a Renewable Energy Zone (REZ) is not a strategy.
The opportunity is to plan energy, storage, fibre, water and major new electricity loads together, and use the scale of data centre investment to help deliver infrastructure that supports broader regional growth.
That would represent a shift from accommodating individual projects to considering what an entire region needs.
It also sits comfortably with the NSW Government’s own emerging policy position. Its Data Centre Consultation Paper says allowing greater flexibility for facilities outside Greater Sydney could support regional economic development while reducing pressure on constrained urban systems.
The scale of investment means the stakes are significant. The paper forecasts data centres’ share of NSW grid-supplied electricity consumption will rise from about 5 per cent in 2026 to 11 per cent by 2030.
NSW Industry and Trade Minister Anoulack Chanthivong told the CEDA event the ambition should extend well beyond simply hosting buildings full of computers.
“Our ambition should not just be to host the infrastructure of the AI economy but help to create and own the value that flows from it,” he said.
The opportunity, in other words, is not simply more data centres. It is the wider technology, infrastructure and economic ecosystem that can develop around them.
Plan regions, not individual projects
Perhaps the clearest model to emerge from the CEDA discussion came from Ausgrid Group Executive Customer Fatima Bazzi.
Rather than responding separately when a renewable project, battery or data centre seeks to connect, she argued NSW needed to plan the infrastructure requirements of whole regions.
That means considering generation, storage and major electricity loads together, then building infrastructure capable of serving multiple users rather than duplicating it project by project.
For Bazzi, coordination was central – between government, utilities, councils and the communities affected.
“Government-led precinct planning is going to be the key to enable that generation, storage, large loads within certain regions,” she said.
“If we do that right, we’ll get better system outcomes for all customers and really drive the investment in the right way.”
That approach is already beginning to be explored.
In the Hunter, Bazzi said Ausgrid was working with generators, battery customers and prospective data centre operators to determine how the infrastructure requirements could fit together.
But she argued the thinking needed to extend across the state.
“We need to look at all of New South Wales holistically and go, where are the real opportunities?”
Those opportunities could include locations where renewable generation and battery storage are developing alongside existing or former industrial land.
Bazzi also raised the possibility of repurposing brownfield mining sites as mines close, noting some are already in industrial areas and may lend themselves to new uses.
The broader proposition is compelling: instead of asking where a data centre can be squeezed into the existing system, identify places where new digital infrastructure can form part of a coordinated regional investment strategy.
Matching the right compute with the right location
Not every data centre, however, is suitable for a regional location.
Some workloads remain highly sensitive to latency – the time it takes information to travel between user and server – while others can tolerate greater distance.
The rapid growth of AI is changing that equation.
During the CEDA discussion, the prospect was raised that some AI workloads, including training, could have different requirements from systems supporting hospitals, banking or traffic networks. That potentially creates more flexibility around where facilities are located and how they are powered.
Celero Infrastructure’s Partner, Head of Digital Development Andrew Walton said changing service requirements could allow some operators to consider locations near strong wind or solar resources and bring telecommunications infrastructure to the site.
That could include facilities operating partly or entirely behind the meter, supplied directly from generation rather than taking their full electricity requirements from the public grid.
But Walton cautioned that renewable electricity alone does not create a viable data centre location.
As the size and processing power of data centres increases, so too does their need for telecommunications infrastructure.
That makes fibre one of the most important pieces of the regional opportunity.
A region may have suitable land, renewable generation and battery capacity, but without high-capacity fibre it may still be unable to host many data centre workloads.
Looked at differently, however, that constraint could also become part of the opportunity.
Where major telecommunications upgrades are required to support new investment, careful planning could seek to maximise their wider economic value – strengthening the digital infrastructure available to surrounding industries and communities rather than creating isolated connections serving a single facility.
That is the difference between treating a data centre as a standalone development and treating it as an anchor within a broader regional infrastructure plan.
Turning major investment into shared infrastructure
Water provides a useful example of what coordinated infrastructure could look like.
Sydney Water‘s Head of Western Sydney Development Paul Higham told the CEDA event that Western Sydney could produce large quantities of recycled water, including from five wastewater treatment facilities.
But servicing every data centre separately would make little sense.
“I don’t want to build five pipelines all going down the same corridor to five different data centres,” he said.
“Water infrastructure is a shared infrastructure.”
His example was metropolitan, but the principle has wider application.
If several major users are likely to emerge in a precinct or region, shared infrastructure can provide a more efficient solution than building multiple standalone systems.
It also highlights the need for early and credible demand forecasts. Data centre developments can move rapidly, while water, electricity and telecommunications infrastructure can have lead times and operating lives measured in decades.
Bazzi said Ausgrid had already tightened its approach after dealing with significant “capacity banking” – projects seeking to reserve electricity capacity before it was clear that all would proceed.
“There was a lot of capacity banking, so we had queues that were equivalent to all of Sydney’s energy requirements.”
Stronger governance had since helped remove some less serious customers from the queue and improve forecasts.
For regional communities, the lesson is important. Infrastructure should not be oversized for speculative demand, but neither should regions miss opportunities because enabling infrastructure arrives too late.
The answer lies in better information, sequencing and planning across a portfolio of investment rather than project by project.
A regional dividend depends on who pays
If data centre investment is to help drive new regional infrastructure, another principle becomes critical – communities should not be left subsidising it.
Minister Chanthivong was explicit in his address.
“There’ll be no robber barons this time around. Data centres must pay their way fairly.”
He said proponents should also help develop solutions that add to NSW’s overall energy and water capacity.
On the electricity distribution network, Bazzi described the approach as “causer pays”.
“It’s really, really clear the causer pays for the infrastructure or any augmentation on the network,” she said.
The NSW Government’s consultation paper adopts the same broad principle, stating that data centre developers and operators should fund infrastructure requirements additional to what is already planned and funded so household prices do not increase.
The regulatory picture becomes more complicated where major projects trigger deeper upgrades to the transmission system, and the government paper itself calls for cost-recovery arrangements to be reviewed.
But the objective is important for regional development.
The strongest model is not one where a community subsidises infrastructure for a major global operator. Nor is it necessarily one where expensive new infrastructure is built solely for a single fenced facility.
The greater opportunity is to use proponent investment, wherever practical, to help expand energy, water or digital infrastructure in ways that support the data centre while creating capacity with wider and longer-term value.
The government consultation paper points to that potential, suggesting data centre investment could help mobilise new renewable generation and storage, expand rainfall-independent water supplies including recycling and support local supply chains.
Done well, the infrastructure required by a new industry could become part of the infrastructure that enables the next one.
Social licence starts with visible local value
That broader regional dividend could also prove important in securing community support.
Data centres can be difficult infrastructure for communities to understand. Unlike a new road or railway, their benefits are not necessarily visible from outside the fence.
Scyne Chief AI Officer Gary Denman told the CEDA forum that this disconnect sits at the heart of the social licence challenge.
Drawing on the experience of other major infrastructure, he argued communities needed to understand how development could improve outcomes for them.
There was an opportunity, he said, to demonstrate “better health outcomes, better education outcomes” and “better innovation opportunities”, as well as new supply-chain activity.
“I’m not sure we’ve spent enough time on the communication and the engagement of the community,” he said.
His point was not simply about better messaging.
For regional NSW, the stronger proposition is to make the local value tangible, whether through shared infrastructure, stronger digital connectivity, local supply chains or other enduring benefits appropriate to the region.
An opportunity to shape, not simply accommodate
None of this suggests regional NSW should become the default destination for data centres displaced by constraints in Sydney.
Regional locations bring their own limits, from fibre and water availability to competing land uses and the capacity of local infrastructure.
The opportunity instead lies in being more selective.
Which workloads can operate efficiently outside metropolitan Sydney? Where can generation, storage, fibre and water be brought together? Which existing industrial areas could support new use? And where could a major digital investment strengthen rather than compete with the region’s longer-term economic development?
The NSW Government’s consultation paper already acknowledges that conditions outside Greater Sydney can differ significantly and that planning settings should recognise those differences rather than apply metropolitan assumptions across the state.
That opens the door to a more deliberate model of regional data centre development.
NSW does not lack investor interest. The more consequential question is whether that investment can be directed to the places where it creates the greatest combined value.
For regional NSW, getting that equation right has a fairly concrete shape: precinct-level planning that treats energy, water, fibre and land as one system rather than five separate approvals; cost-recovery rules that keep the causer, not the community, paying for augmentation; and a visible account of what each region gets back once the money is spent.
Get that sequence right, and the data centre boom stops being another source of infrastructure pressure on regional NSW. It becomes the down payment on infrastructure the next industry will need too.
Article: Liz Ginis, Communications and Marketing Manager, RDA Sydney
Image: Courtesy CEDA
