A year of… growing regulatory scrutiny, infrastructure constraints and heightened oversight
Australia’s data centre market is anticipated to double in the next 5 years. With its stable economy, transparent regulatory framework and robust infrastructure, Australia is a relatively safe location for data centre investment from a legal and regulatory perspective.
There is significant demand for on-shore data centre capacity (driven by hyperscalers and neoclouds) as a mature economy. The evolving legal framework for AI, including copyright issues, may influence the pace and nature of AI deployment.
The allure of the Australian market is marked by insufficient carrots and burdensome sticks. Australia’s strict foreign investment regime can significantly affect the timing and structuring of site acquisitions, investments in data centres and tenancies involving foreign tenants.
Power transmission continues to be a concern. Critical infrastructure regulations and government security requirements increase the regulatory burden. Despite these impeding factors, a remarkable data centre growth story is emerging.
Data centre statistics provided by DC Byte.
Spotlight on key drivers
With laws that clearly outline the relevant procedures for power and land approvals, developers and investors can navigate the permitting process and management of data centres with confidence. Although these requirements can prove burdensome and impose delays, they ultimately bring clarity that fosters trust among investors and positions Australia as a reliable hub for data centres in the APAC region.
The Australian Government has published national ‘Expectations of data centres and AI infrastructure developers’ (Expectations), providing guidance for how data centre operators and AI infrastructure developers may receive priority approval from regulators for their proposal. The government is also consulting on proposed mandatory standards for large data centres and AI training, with the States also seeking to set the ‘rules of the road’ for investment.
These settings may increasingly influence regulatory assessments and project development.
The progressive retirement of major coal power stations, combined with network capacity constraints and the skyrocketing energy demands of new data centres, is expected to place increasing pressure on power supply. The increased demand for data centres is also presenting challenges for connecting large new electricity loads.
Large data centre and AI infrastructure developers are increasingly expected to secure their own power supply and contribute to the costs of connecting new load to the electricity system. In Victoria, new data centres will be expected to match new demand with new renewable generation and storage, and meet associated connection and network upgrade costs.
Chief among these is the requirement for FIRB approval from the Federal Treasurer for land acquisitions and data centre operations, along with the significant operational constraints imposed by the Security of Critical Infrastructure Act 2018 (SOCI Act) and the Federal Government’s Hosting Certification Framework (HCF). Reforms that are under way should lead to simpler treatment for genuinely low-risk investments, but data, AI and critical infrastructure investments are still likely to be closely scrutinised.
Developers and investors should carefully assess the FIRB, SOCI Act and HCF implications before committing to data centre projects in Australia, and for post-completion compliance obligations.
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