AAustralia is riding the AI boom with dozens of new investments in datacentres in Sydney and Melbourne, with experts warning about the impact these huge projects could have on already-stressed water resources.
Water demand to service datacenters in Sydney alone is projected to exceed the total drinking water volume of Canberra within the next decade.
The Victorian Government has announced a “$5.5 million investment to become the datacenter capital of Australia” in Melbourne, but available hyperscale datacenter applications already exceed demand for nearly all of the state’s top 30 business customers.
Technology companies including Open AI and Atlassian are pushing to make Australia a hub for data processing and storage. But with 260 datacenters in operation and dozens more coming up, experts are raising concerns about the impact on drinking water supplies.
Sydney Water has estimated that 250 megalitres per day will be needed to service the industry by 2035 (a volume larger than the total volume of Canberra). drinking water,
Requires ‘huge amounts of water’ for cooling
Professor Priya Rajagopalan, director of the Post-Carbon Research Center at RMIT, says a datacentre’s water and electricity demands depend on the cooling technology used.
“If you are using only evaporative cooling, there is a lot of water loss due to evaporation, but if you are using a chiller, there is no water loss, but it requires a huge amount of water to cool it,” she says.
While older datacenters rely on air cooling, the demand for more computing power means higher server rack density, so the output is hotter, meaning centers have turned to water for cooling.
The amount of water used in a datacenter can vary greatly. Some centers, like NextDC, are moving toward liquid-to-chip cooling, which cools the processor or GPU directly rather than using air or water to cool an entire room.
NextDC says it has completed initial small deployments of the cooling technology, but it has the potential to scale up to ultra-high-density environments to allow more processing power without increasing power consumption because liquid cooling is more efficient. The company says its modeling shows power usage effectiveness (PUE, a measure of energy efficiency) could be as low as 1.15.
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The datacenter industry is responsible for its sustainability with two metrics: water usage effectiveness (WUE) and power usage effectiveness (PUE). These measure the amount of water or electricity used relative to computing work.
WUE is measured by dividing annual water use by annual IT energy use (kWh). For example, a 100MW datacenter using 3ML per day will have a WUE of 1.25. The closer the number is to 1, the more efficient it is. Many countries mandate minimum standards. For example, Malaysia recommends a WUE of 1.8.
But efficient facilities can also use large amounts of water and energy on a large scale.
NextDC’s PUE in the last financial year was 1.44, up from 1.42 the year before, which the company says “reflects the dynamic nature of customer activity across our fleet and the expansion of new features”.
Demand to ban the use of drinking water
Sydney Water says its estimates of datacentre water use are being regularly reviewed. The utility is exploring climate-resilient and alternative water sources such as recycled water and stormwater harvesting to prepare for future demand.
A Sydney Water spokesperson says, “All proposed datacentre connections are individually assessed to confirm there is sufficient local network capacity and if additional servicing is required operators may require funding for upgrades.”
In presenting the Victorian pricing review for 2026 to 2031, Melbourne Water noted that hyperscale datacenter operators who have applied for connection have “forecasted immediate or annual demand greater than almost all of the top 30 non-residential customers in Melbourne”.
“We have not accounted for this in our demand forecasts or spending plans,” Melbourne Water said.
It has sought upfront capital contribution from companies so that the financial burden of essential works “does not fall on the wider customer base”.
According to the documents, Greater Western Water had 19 datacenter applications available in Victoria Received by ABCAnd provided to the guardian.
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The Concerned Waterways Alliance, a network of Victorian community and environmental groups, has highlighted its concerns about transferring large amounts of drinking water to cool servers when many of the state’s water resources are already stretched.
Coalition spokesperson Cameron Steele says datacentre development could increase Melbourne’s reliance on desalinated water and reduce water available for environmental runoff, with associated costs borne by the community. groups have called for Restrictions on the use of drinking water for cooling, and mandatory public reporting of water use for all centres.
“We would strongly advocate the use of recycled water for datacenters instead of potable drinking water.”
closed-loop cooling
In hot climates, such as large parts of Australia during the summer months, more energy or water is required to keep the centers cool.
Danielle Francis, manager of customer and policy at the Water Services Association of Australia, says there is no one-size-fits-all approach to how much energy and water datacentres use as it will depend on local constraints such as land, noise restrictions and water availability.
“We’re always balancing all the different customers, and that’s a mix of residential areas and non-residential customers, as well as, of course, environmental requirements,” says Francis.
“It’s true that there are a lot of datacenter applications. And the cumulative impact is what we have to plan for… We have to clearly look at what the community impact of this is going to be.
“And sometimes they like to be close to each other and be in the same place.”
One center under construction in Marsden Park, Sydney, is a 504 MW datacentre spanning 20 hectares, comprising six four-storey buildings. The company has claimed that the CDC center will become the largest data campus in the Southern Hemisphere.
In the last fiscal year, CDC used 95.8% renewable electricity in its operational datacenters, and the company has a PUE of 1.38 and WUE of 0.01. A spokesperson for the company says it has been able to achieve this through a closed-loop cooling system that eliminates the constant loss of water, rather than relying on traditional evaporative cooling systems.
A spokesperson says, “Closed-loop systems at CDC are filled once at the beginning of their life and operate continuously without water drawdown, evaporation or waste, ensuring we are conserving water while maintaining thermal performance.”
“It is a model designed for Australia, a country affected by drought and water stress, and is built for long-term sustainability and sets an industry standard.”
Planning documents for the center show that, despite CDC’s efforts, some community concerns remain over the project.
In a June letter, Peter Rofel, acting chief executive of the Western Health District of New South Wales, said the development was too close to vulnerable communities, and the unprecedented scale of the development was untested and represents an inappropriate risk to western Sydney communities.
“The proposal does not provide assurance that the operation can adequately accommodate or mitigate environmental risks during extreme heat weather events so as not to pose unreasonable risks to human health,” Rofail said.
