Australia has a generational opportunity to be a global hub for AI infrastructure. The Federal Government’s National AI Plan and Expectations of data centres and AI infrastructure developers (Expectations) indicate a desire for this, but the National AI Plan is high level and the Expectations are framed as demands. Government should now be clear about the specific steps it will take to break down barriers to getting developments off the ground, allowing AI companies and private capital to commit to Australia at scale. We have identified five of those steps.
Power: unblocking the primary bottleneck
A grid connection is the ticket to play for data centre projects, but timelines are slow. The key challenge is not power generation, but deliverability – matching supply with grid capacity in an environment where connection queues are congested with speculative or contingent connection requests by data centre developers that never mature into grid draw. This ‘phantom demand’ makes incremental network investment planning difficult and causes connection delays.
According to its Expectations, the Federal Government will prioritise data centre projects that fund their share of grid costs. The implications of this are clear in the case of dedicated work designed to connect a data centre to the grid – these costs are to be borne by the data centre operator, as is currently the case. However, in the case of costs of augmenting the ‘main grid’ to facilitate general increased usage, it is not so simple to allocate these costs to specific projects in a cost effective way.
A potential solution is for Government to revisit the regulatory framework to enable network service providers to build the required upstream infrastructure and for data centre developers to pay differential service payments to use it, providing capacity and cost certainty for developers while reducing the costs borne by the wider consumer base. Alternatively, Federal and State Governments could declare strategic areas such as Western Sydney or Melbourne for data centre developments and provide additional grid capacity to these areas. Through a transparent access scheme (similar to those for the Renewable Energy Zones), data centre developers could compensate Government for the infrastructure costs, ringfencing the incremental investment.
The Expectations also state that projects will be prioritised that secure new and additional clean energy generation and storage to offset demand. The Expectations leave it open to industry as to how this is achieved – for example, there is no requirement that this generation and storage be co-located with a data centre or be owned by the data centre operator. This leaves the industry with significant flexibility as to how they address this Expectation and creates the opportunity for ‘capital lite’ solutions such as offtake contracting with third party renewables and storage projects. Government could play a role in facilitating such solutions by helping ‘match’ data centre developers with renewables and storage projects that receive government support through one of the various government underwriting schemes.
Water: sustainable, long‑term supply
Water access is predominately a matter for States and Territories. However, projects with the potential to have a significant impact on ‘matter of national environmental significance’ (eg. threatened flora and fauna, Ramsar wetlands) may need to be referred to the Federal Minister for assessment and approval under the Environment Protection and Biodiversity Conservation Act 1999 (Cth) (EPBC Act), extending approval timeframes and associated costs.
Under recent amendments to the EPBC Act, Federal, State and Territory Governments could collaborate to develop bioregional plans that identify priority zones in each jurisdiction for data centre developments (eg. regions with suitable land use zoning, an absence of sensitive ecological values, and sufficient water), allowing eligible developments in those zones to proceed without specific approval by the Federal Minister. These plans are still some years in the making.
Further, there are EPBC Act streamlining reforms which could assist data centres, including a pathway for projects with detailed, upfront assessment information which demonstrates compliance with National Environmental Standards. Finally, a new national interests proposal process and amendments to the national interest exemption powers may offer data centres alternate pathways to obtain authorisation under the EPBC Act. The Expectations reflect that projects will be prioritised if they use innovative, efficient and sustainable solutions to minimise water use. This is a matter of importance to water authorities and for social licence generally, given projections of future reduced water availability. Water efficiency is a critical focus. A shift to more efficient cooling technologies such as liquid cooling and the use of lower-quality water, including recycled or desalinated water, by data centre developers will further support this cause.
Planning approvals: speed and predictable pathways
Competition between States and Territories for data centre investment, and increased use of ‘fast track’ processes for state significant developments, is expected to bring down approval times. The NSW Government’s recently established Investment Development Authority (IDA) approved 15 data centre projects in March 2026. Victoria’s Development Facilitation Program recently approved a A$1 billion hyperscale project in 75 days.
However, investors value predictability as much as speed. There is a role for Federal Government to support investors to navigate State and Territory processes – as an ‘approval sherpa’ – through standardised approvals maps, while smoothing interfaces with national requirements such as those arising from the Expectations and the National AI Plan.
FIRB: timing and transparency
After the Foreign Investment Review Board (FIRB) gives approval for the commencement of a data centre as a national security business, the developer/operator generally has only 12 months to commence operations – which currently may be extended to 24 months at the Treasurer’s discretion. The current validity periods do not align with the multi‑year development cycle of a data centre project. As noted in Treasury’s consultation on Australia’s foreign investment regime, investors have indicated the standard 12–month validity period is insufficient to accommodate multi-year timelines. This imposes an additional burden of variations to extend the timeframe or submitting multiple foreign investment applications to meet the commercial needs of the investment. We welcome Treasury’s consideration of extending the validity periods for an approval that would be sufficient to accommodate complex and large transactions.
As new players emerge such as ‘neoclouds’ (who sell access to AI infrastructure in rented data centre space), the identity of anchor customers underwriting investments may not be clear. It is widely understood that scrutiny of data centre projects by FIRB will remain, but it would be helpful for investors to have one-on-one briefings with FIRB on customers so that they can proceed with significant AI infrastructure investments with a level of certainty.
Copyright: pathway to a licensing solution
Government has rejected the creation of a text‑and‑data mining exception under the Copyright Act 1968 (Cth) to allow third party content to be used for AI training, and is exploring content licensing solutions instead. An acceptable licensing regime could take years to develop. In the meantime, AI companies face the risk of copyright infringement claims from content owners if they train their models in Australia.
The Federal Government should work fast to provide certainty for investors by establishing a clear and timebound process for defining this licensing solution. Otherwise capacity will shift to other markets with more permissive or transparent regulatory frameworks such as Singapore, while Australian content could potentially still be used for training, just not in Australia.
Where to from here
This is a race. Australia is currently well-placed, but other markets are aligning policy, infrastructure and approvals to welcome capital. The Federal Government itself acknowledges that the prize is well over A$100 billion in investment. The potential downstream benefits to the Australian economy, infrastructure and people are just as exciting.
If the Federal Government focuses on removing these barriers in the next six to 12 months, it will provide significant confidence to investors and AI companies.
