Victoria tightens data centre rules with renewable power mandate, water restrictions

Data centre developers in Victoria now face additional regulatory burden, with potential delays to approvals and higher construction expenses due to the requirement to procure dedicated renewable energy and non-potable water. Since the rules apply only prospectively, projects that have already been approved or are under ministerial review are exempt, which should limit short-term disruption to existing pipelines.

For firms such as Amazon and Microsoft that have expressed interest in building data centres in Victoria, the new requirements create planning uncertainty that may affect decisions on where to locate future capacity compared to states with less stringent regulations. The industry's representative body has criticised the rules as treating data centres differently from comparable industrial activities, a stance that could strengthen lobbying efforts against similar policies in other parts of Australia.

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Victoria's message to data centre developers is clear: generate your own electricity, avoid using drinking water, and invest in local communities, or confront stricter planning controls than any other sector in the state.

The key measures announced are:

• Premier Ben Carroll announced that new data centres must self-source renewable energy and are prohibited from using drinking water for cooling.
• Construction of data centres near schools and childcare centres is banned, and a 150-metre separation from residential properties is mandated.
• Developers must pay into a local investment fund that supports TAFEs and parks.
• The rules are not applied retroactively, meaning projects already approved or under ministerial review, such as NextDC's $1 billion Port Melbourne facility, are exempt.
• Belinda Dennett, chief executive of Data Centres Australia, described the changes as disappointing and at odds with regulations for comparable industries like warehouses and logistics.
• Victoria hosts around 50 operational data centres, mostly in Melbourne's west, and the state's energy consumption for data centres is forecast to increase fourfold by 2030.

According to ABC News, Premier Ben Carroll announced new planning rules requiring all new data centres to obtain their own renewable energy and forbid the use of drinking water for cooling. A 150-metre buffer from residential homes and a ban near schools and childcare centres are also in place. Developers must also contribute to a local investment fund that benefits TAFEs and parks in the affected communities.

Carroll said the rules aim to make data centres self-powered, protect neighbouring homes, and benefit the communities where they are located, adding that proper settings would let local residents share in the sector's economic gains. The government stated that the planning regulation changes would take effect as soon as possible but gave no specific date. Crucially, the rules do not apply retroactively, so projects that are already approved or under ministerial review, including NextDC's approximately $1 billion Port Melbourne data centre approved in 75 days under the Development Facilitation Program, are exempt.

The policy comes amid rising community objection to the fast pace of data centre building in Victoria, with some Labor MPs and candidates also voicing concerns. Belinda Dennett, Data Centres Australia chief executive, criticised the changes, calling them disappointing and saying a uniform 150-metre setback disregards actual impact, and that data centres face restrictions not imposed on similar industrial uses like warehouses and logistics. Dennett added that the sector aims to engage positively with local communities, while noting that data centres are critical infrastructure for emergency services, air traffic control, and hospital systems.

Regarding water, the government noted that under one percent of the state's drinking water is used for data centre cooling, but said that number should be zero. New data centres must use recycled or other non-drinking water sources, and must find offsets if that is not possible. Victoria has around 50 operational data centres, mostly in Melbourne's inner west, out of approximately 162 nationwide with a combined IT capacity of 1.5 GW as of March this year; the state's data centre energy use is expected to quadruple by 2030. The announcement coincides with a Senate inquiry into AI and data centres holding hearings in Melbourne this week, and follows local opposition in Melbourne's inner west over high-voltage power infrastructure linked to a nearby data centre expansion.