New South Wales has moved to accelerate development of data centres while requiring operators to shoulder more of the infrastructure costs created by the rapid expansion of artificial intelligence and cloud computing.
The Minns government’s new NSW Data Centre Policy Framework, released on Monday, sets out planning, electricity and water requirements for a sector experiencing substantial investment growth.
Projects meeting the government’s performance standards will be targeted for planning assessment within 75 days, while developers will be expected to fund additional energy and water infrastructure required by their facilities.
The framework comes as demand from AI and data centre operators emerges as a significant new factor for Australia’s electricity networks.
As of July 2026, data centres seeking connections in NSW represented potential capacity of as much as 28 gigawatts (GW), with about 13 GW in advanced connection discussions. The NSW Government noted that 13 GW is greater than the state's average daily electricity demand.
There are also 20 data centre projects worth $51.4 billion in the NSW State Significant Development pipeline.
Developers to carry infrastructure costs
The policy is built around 6 principles, including applying high environmental and efficiency standards, ensuring projects impose no net cost on consumers and communities, and requiring operators to fund additional water and energy supply.
Developers will also be expected to contribute to local infrastructure, invest in industries across the data centre supply chain and demonstrate commitments to training and skills.
A central issue is who pays for the electricity infrastructure required to support the sector.
The government has begun consultation on regulatory reforms designed to recover the cost of additional electricity network investment from data centre operators rather than households and small businesses.
Consultation runs from August 17 to September 14, 2026, while legislation has also been introduced to enable changes supporting the reforms.
Water costs will be considered separately, with the Independent Pricing and Regulatory Tribunal (IPART) to examine how pricing can reflect the full cost of supplying data centres, including the implications of drought.
AI becomes an infrastructure story
The policy highlights how the AI investment boom is increasingly extending beyond semiconductors, software and cloud services into electricity generation, transmission, water and construction.
The NSW framework comprises 3 pillars: using the new guidelines in planning assessments, reforming electricity infrastructure cost recovery and conducting the IPART review of water costs.
NSW Treasurer Daniel Mookhey said in a statement that the government was seeking to provide greater certainty for both investors and communities.
“This world-class framework provides the certainty that both investors and – importantly – the community need,” Mookhey said.
“NSW is a premium destination, so we are setting a high bar.”
The framework has received support from data centre operators including CDC Data Centres and AirTrunk, as well as industry body Data Centres Australia.
For investors, the scale of proposed connections illustrates an important consequence of the AI build-out: access to computing capacity is becoming increasingly dependent on access to power, grid infrastructure and water.
That could make electricity networks, renewable generation, storage and supporting infrastructure an increasingly important part of the broader AI investment theme.