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Data centre regulation in Australia: spotlight on Victoria and NSW

Victoria’s Department of Jobs, Skills, Industry and Regions has recently published the Sustainable Data Centre Action Plan. The Action Plan seeks to ‘build on Victoria’s robust policy and regulatory settings’ by providing ‘clarity and predictability’ for all stakeholders, and ‘appropriate guardrails’ to address community and resources impacts. It precedes Commonwealth reforms on data centre energy, water and land-use standards intended for early 2027, whilst recognising the need for consistency with the national approach once agreed. 

The Action Plan follows New South Wales’ publication of the NSW Data Centre Guidelines and accompanying NSW Data Centre Policy Framework. This was the first dedicated state-level data centre regulatory package in Australia and introduced a set of policies to be implemented through existing regulatory controls, such as the planning system, energy regulations and water pricing.

The Victorian Action Plan follows a similar model. In particular, it identifies a number of policy positions regarding the location of data centre developments, what will be required in terms of electricity and water use and investment, and local benefits. The Action Plan suggests that this can be delivered through Victoria’s existing planning, environmental, water and energy regulatory frameworks, supplemented by new guidelines and amendments to planning schemes to introduce data centre-specific policy and controls.  In relation to the latter, the Victorian Government has moved quickly by giving notice to local councils of amendment VC324, which proposes a new data centre land use term, policy and stronger controls on where data centres may be located.  The timeframe for approval of this amendment remains unclear, particularly given the Victorian election on 28 November 2026, and the prospect that the measures proposed could change in the event of a change in government. 

In this insight, we compare the proposed regulatory settings for data centre developments in New South Wales and Victoria and identify the key takeaways for industry in this evolving regulatory landscape.

Comparing regulatory approaches to data centres: Victoria and NSW

Regulatory dimensionVictoria NSW

Policy document 

The Sustainable Data Centre Action Plan 

NSW Data Centre Guidelines; NSW Data Centre Policy Framework 
 

Primary planning and environmental approvals / compliance legislation 

Planning and Environment Act 1987 (Vic); Environment Protection Act 2017 (Vic)

Environmental Planning and Assessment Act 1979 (NSW); Electricity Infrastructure Investment Act 2020 (NSW); Protection of the Environment Operations Act 1997 (NSW) 
 

Specific land use

Victorian planning schemes are proposed to be amended to include a specific land use definition for data centres: ‘Land used to collect, distribute, process, or store digital data. It does not include collecting, distributing, processing, or storing digital data if it is ancillary to another use of the land’. 

The Standard Instrument – Principal Local Environmental Plan, which is the current template document for all local environmental plans, contains a standard definition for data centres as ‘a building or place the principal purpose of which is to collect, distribute, process or store electronic data using information technology’.
 

Locational controls 

The Action Plan states that data centre developments will be prohibited:

  • on residentially zoned land;
     
  • within 150 m of any residential building; and
     
  • in rural zones unless located near and able to be served by critical infrastructure.

Victoria’s Planning for Melbourne’s Green Wedges and Agricultural Land Action Plan 2024 has also committed to prohibiting new data centres in Green Wedge Zone and Rural Conservation Zone land. 
 

Data centres are a type of ‘high technology industry’, which falls under the broader category of ‘light industry’.

Data centres are generally permissible with consent in specific business, employment, industrial and productivity zones, including B5 Business Development, B7 Business Park, E3 Productivity Support and E4 General Industrial.

Referral requirements 

The Victorian Planning Provisions are proposed to be formally amended to extend referral authority status to Worksafe Victoria, Fire Rescue Victoria, VicGrid and the relevant water corporation for all data centre permit applications.  

Amendment VC324 also proposes to expand the EPA’s role as a referral authority to any data centre application (rather than just those requiring a licence under the Environment Protection Act 2017 (Vic)). 
 

The referral requirements will vary depending on the location of the data centre. 

Referrals may be made to NSW EPA, Fire Rescue NSW, Transport for NSW, the Conservation Programs, Heritage and Regulation Group (DCCEEW) and Sydney Water.

The State Referral Provisions (June 2026) published by the Development Coordination Authority provides guidance on the various referrals that may be required.

Energy supply 

To ensure that data centre electricity demand is met by new investment in renewable energy, the Action Plan contemplates that data centres will be required to: 

  • offset actual operational electricity use by investing in new renewable energy generation and storage;
     
  • cover all connection costs and network augmentations required as a direct result of new investment, including necessary upstream augmentations; and
     
  • participate in demand flexibility services to the maximum extent ‘commercially and technically’ possible. 
     

Facilities to enter into PPAs and firming agreements for additional renewable energy generation assets to meet electricity demand. 

Designs are to be based on climate data representing average annualised conditions and mature data centre utilisation. 

Facilities to enter commercial arrangements with energy and water utilities that protect customer base from utility costs and stranded asset risks.

Facilities using water-intensive cooling systems will use 100% recycled water for cooling operations or have a transition agreement with a water utility company. 

No adverse impact on agricultural water use in agricultural areas. 

Facilities using drinking water as an interim measure must be designed to allow for reduced usage. 

Water usage 

The Action Plan contemplates data centres will be required to meet the full cost of water infrastructure required for operations. 

The Action Plan also states that facilities using water cooling-based systems will be required to use recycled or non-drinking water sources in their operations, or hold a transitional agreement with a water corporation and offset interim use of drinking water through funding agreements or water efficiency programs.   

Facilities using drinking water as an interim measure must also be designed to allow for reduced usage.
 

Energy and water efficiency standards 

 

Data centres to be required to achieve high levels of power usage effectiveness (dPUE), designed to industry best-practice targets and measured to national standards. 

In respect of water, the Action Plan identifies the need for alignment with mandatory minimum water-use and reporting standards, and that facilities will be required to design to Water Usage Effectiveness (dWUE)<1.0 (potable) or <1.6 (non-potable) or as otherwise agreed with the water corporation, measured in line with ISO/IEC 30132-9.2022. 

Data centres to design for Power Usage Effectiveness dPUE and Water Usage Effectiveness dWUE targets within the following ranges: dPUE < and dWUE <1.0 (potable water) or dWUE <1.6 (non-potable water) 

Or 

dPUE <1.3 and dWUE <0.44.  

Facilities must demonstrate ability to reduce grid-supplied electricity demand by 25% for a two hour period (excluding use of diesel back-up generators).

They also have smart energy and water installation requirements. 
 

Air quality standards 

The Action Plan states that proponents must:

  • restrict backup diesel generation to emergencies and mandatory testing;
     
  • deploy best-available technology;
     
  • undertake continuous monitoring;
     
  • report on emissions and runtime; and
     
  • mitigate air quality impacts. 
     

Facilities required to demonstrate ambient air health-based criteria and meet NSW Clean Air Regulation ‘Group 6’ air pollutant limits for diesel back-up generators.

Noise standards 

Statewide industrial/commercial noise limits apply with night time limits of 55dB(A), with a penalty for tonal noise. 
 

Require preparation of quantitative noise and vibration impact assessment. 

Safety standards 

The Action Plan highlights the strength of existing regulation, and suggests that there will be regulatory coordination between Energy Safety Victoria, WorkSafe Victoria, Fire Rescue Victoria and the CFA to ensure ‘consistent regulatory expectations across agencies’.
 

Facilities to demonstrate appropriate management and controls for fire and explosion risks in accordance with SafeWork NSW and Fire and Rescue NSW guidance. 

Retrospective operation? 

No. The Premier has stated that “[t]he new rules won't be retrospective for applications under assessment, but we expect data centres to continue to work with locals and respond to their concerns”. 
 

No. The Guidelines do not impose mandatory requirements, but we expect that proponents will be encouraged to meet the standards imposed under the Guidelines where possible.

Local investment requirements 

The Action Plan contemplates a ‘Local Investment Guarantee’, focussed on local employment, First Nations engagement, local procurement, and local amenity, to be established as part of a data centre development. 
 

Encourage prioritised use of local content and supply chains, support training of data centre construction and operators.

Key considerations for data centre planning

1. Jurisdiction is important

Although there are points of convergence in the existing and proposed regulatory settings across states, the role of State legislation means there is significant potential for divergence. The Commonwealth has also foreshadowed federal legislation, the detail of which is yet to be revealed. However, it will potentially raise complex legal questions about the scope of legislative power and the effect of Commonwealth law on existing State legislation. 

Understanding this ‘jurisdictional lens’ is important to understanding opportunities and constraints, particularly for foreign industry participants who are unfamiliar with the interplay between local, State and Commonwealth legislation. 

2. Cost recovery and offsets for utility use requires upfront planning and investment 

The regulatory changes proposed by both NSW and Victoria, and the Commonwealth’s stated intent, anticipate data centres being required to account for electricity and water usage and infrastructure. This signals a material shift in the economics of data centre developments. It is anticipated to drive increased investment in renewable energy storage and recycled water projects, as well as a focus on precincts where complementary assets can be co-located.

3. Operational efficiency standards 

Both the NSW Guidelines and the Victorian Action Plan anticipate that data centres will be required to adhere to operational efficiency standards, including for water and energy use. These standards are likely to provide the benchmarks that will inform future national standards and obligations. How to design for, adopt and measure data centre operations against these standards is likely to become an increasingly important compliance (and cost) consideration. 

4. Navigating uncertainty 

Governments have responded to changing sentiment around the impacts of data centres on communities and the environment, and are now seeking to identify appropriate guardrails for data centre development. We have seen statements of intent and some indication of what’s to come, although there remains significant uncertainty about the controls and requirements that will be proposed, by whom and when. This uncertainty is challenging for all stakeholders, underscoring the importance of staying abreast of evolving requirements and engaging with key stakeholders. 

5. Social licence is important

Growing community hostility is a key driver of the broader conversation around land use compatibility, the balance between economic, social and environmental impacts, and where and how data centre development should be facilitated. With the community voice growing louder and demanding to be heard, social licence will be an important consideration for any existing or proposed data centre development. See Data centre approvals: community engagement and social licence are essential for more information about this issue. 


Authors

Dr Louise Camenzuli

Head of Environment and Planning

Rosie Syme

Partner

Ivan Brcic

Senior Associate

Carlyna Yap

Associate

Tessa Minns

Law Graduate


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Environment and Planning Foreign Investment Construction, Major Projects and Infrastructure Technology, Media and Telecommunications

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