Australia has an opportunity to secure its position as a major data centre hub in the region. But to Can capture it, investors need something Australia cannot afford to leave uncertain - a clear pathway for securing power.
Australia’s data centre market is anticipated to double in the next five years. Around 6GW of capacity is proposed across Australia – around four times the country's operational data centre capacity at the end of 2025, representing up to A$150 billion of investment by 2030. With a stable economy and established infrastructure market, Australia has many of the fundamentals investors find attractive.
But Australia’s broader investment competitiveness is less assured. The Business Council of Australia’s 2025 Global Investment Competitiveness Index ranks Australia 21st out of 42 countries overall, and 37th for regulation. For an industry that requires significant upfront investment and long-term infrastructure commitments, regulatory predictability can be a competitive advantage.
Power is becoming a critical determinant of where that investment will go. The policy challenge is not simply how much power is available, but how governments manage competing demands for that power while giving investors enough certainty to commit billions of dollars to assets designed to operate for decades.
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Australia is, encouragingly, getting ahead of the issue. Governments are recognising the potential pressure from data centres and putting frameworks in place before demand becomes a system-wide problem.
Other major markets are confronting similar challenges. In the US, rapid growth in data centre demand has prompted federal regulators to rethink how large loads connect to the grid, how new infrastructure is funded and how consumers are protected. In June, the Federal Energy Regulatory Commission directed six major regional grid operators to review or reform their connection rules.
Markets in our region are making similar trade-offs. Singapore paused new data centre development in 2019 as it considered how the industry could grow sustainably, before lifting the moratorium in 2022 and introducing a more selective allocation process. Malaysia has since taken a similarly selective approach, with new non-AI data centre applications restricted amid concerns about power and water resources.
The direction of travel is clear - governments are seeking to accommodate the economic opportunity created by data centres while ensuring their power demands do not shift costs and risks to other electricity users. The objective is not necessarily less regulation, but a clear and predictable pathway through it.
That certainty matters because data centre investment is mobile, and investors can look to other jurisdictions.
Australia has one of the most complex electricity markets in the region, with responsibilities divided between the Commonwealth, states and territories, market bodies and network operators. That complexity is manageable when rules are stable, but becomes a material risk when investors lack clarity on the requirements, costs or timing of securing power.
The government response illustrates both the progress being made and the challenge ahead.
In May, the Energy and Climate Change Ministerial Council (ECMC) set a policy direction under which new data centres would need to offset their electricity demand with renewable generation and firming, alongside measures to improve transparency and flexibility. The Australian Energy Market Commission has since recommended measures covering data centre registration, demand flexibility, renewable energy certificates, new generation and firming, and network cost recovery.
The rules governing data centre connections are evolving. We unpack the latest national and NSW developments – from renewable energy and firming requirements to grid connections and cost recovery.
This reflects legitimate concerns about the impact of rapidly growing data centre demand on consumers, the grid and the energy transition. But data centres are new sources of demand, not the cause of every constraint in the electricity system. Australia was already facing replacing ageing generation, expanding transmission and connecting new renewable and firming capacity before the current boom. The policy task is therefore to ensure data centres contribute fairly to the costs and system impacts they create, without making new investors responsible for infrastructure shortfalls that pre-date them.
But the national framework is still evolving. In July, the ECMC agreed to progress arrangements to mandate the approach, with changes to the National Electricity Rules to follow. Queensland and the Northern Territory have sought different settings, which may yet be resolved through the national framework. The Commonwealth has signalled its goal of national consistency, while noting that alternative approaches should not increase costs for consumers. Some elements could take up to three years to implement, meaning investors will need to navigate a period of transition as the framework is finalised.
Meanwhile, NSW is moving ahead with its own framework to manage the scale and impact of new data centre connections, including how the costs of additional electricity infrastructure are recovered. That reflects the urgency of the issue at a state level, but also raises questions about how the state-level approach will interact with the emerging national framework.
And regulatory certainty is only part of the equation.
Regulation can determine who pays, how demand is managed and what conditions apply to new connections. It cannot build the generation, transmission, firming capacity or grid connections needed to support the next wave of data centres
Australia is already replacing ageing coal-fired generation, building renewable generation and transmission, and developing firming capacity while seeking to maintain reliability and affordability. The rapid growth of AI is adding to those pressures, with AI-ready data centres requiring significantly more power and infrastructure than conventional facilities.
This means the data centre opportunity will require coordination well beyond government. Network service providers, generators, developers and investors will all have a role in turning policy settings into physical infrastructure that allows projects to connect and operate.
That is where the question of regional competitiveness becomes more acute.
Australia is not competing for data centre investment in isolation. Asia Pacific has more than 60% of the world's population but only around 22% of its operational data centre capacity. More than US$280 billion of new capital investment is expected across the region through 2030, with Japan, Malaysia, Australia, India and Indonesia are competing aggressively to capture the bulk of it.
These markets offer investors compelling combinations of land, power, connectivity, incentives and regulatory certainty. Australia’s natural advantages are significant, but they will not be enough if another market can offer a faster and more predictable path from site selection to securing power and getting a facility commercially operational.
Regulatory certainty is therefore becoming a regional competitiveness issue, not simply a domestic policy issue. Australia does not need the cheapest power or the fewest rules to win the digital infrastructure race. It needs to give investors confidence that the rules governing access to power are clear, durable and capable of being translated into infrastructure.
There is a strong case for greater national consistency. As the Prime Minister has put it: “we want to make sure that in attracting investment, we don't have eight different systems operating around the country.” Governments are right to get ahead of the challenge rather than wait for the system to come under strain and further undermine the social licence for data centre development.
The test now is whether policy, infrastructure and investment can move at the same speed as the technology boom.
For Australia, getting the power settings right is not just about managing the data centre boom. It could determine whether we harness it, or miss a golden opportunity.
This insight was published as part of Mallesons’ sponsorship of the 2026 AFR Asia Summit.
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14 countries | Regional themes | Regulatory issues - power, water, land, telco, foreign investment, tax, critical infrastructure and security and data localisation.
