Australia is in the middle of a data centre construction boom. Melbourne alone now hosts around 55 facilities across 27 operators, with established clusters in Truganina, Tullamarine, Derrimut and Port Melbourne serving Microsoft, AWS, NextDC and Equinix. The next wave is bigger again. AirTrunk has announced MEL2, a $5 billion campus in Melbourne’s north west. NextDC has broken ground on S4 Sydney, a 350MW facility with around 1,800 workers on site at peak. And NSW has fast tracked 15 data centre projects through its Investment Delivery Authority.
Demand is not the problem. The question deciding where the next generation of these projects gets built comes down to two things, power and water.
Power is the gatekeeper
For most data centres, electricity represents 25 to 60 per cent of total operating costs. It is the single largest ongoing expense, which makes cheap, reliable power a core commercial requirement, not just a technical one. Power availability is now the first filter in site selection. Industry analysts report that if a site cannot demonstrate a credible path to sufficient power within a reasonable timeframe, it is being ruled out entirely for this cycle of development.
Location relative to generation matters more than most people realise. Power transmitted over long distances loses energy along the way. Siting a facility close to generation and high capacity transmission reduces those losses, simplifies distribution, and improves overall efficiency of the supporting infrastructure. Poor grid connection decisions mean expensive transmission upgrades, delayed interconnection, and in some cases millions of dollars in annual cost differences between sites only a few grid nodes apart.
This is exactly why the industry’s centre of gravity is shifting. Metro clusters like Truganina and Tullamarine proved the demand, but firm grid connections in capital cities are becoming harder to secure. The next gigawatt of capacity is looking for locations where power already exists at scale.
The policy environment is now moving in the same direction. Under proposed mandatory national standards announced by the Australian Government this week, large data centres would be legally required to underwrite new power generation, put at least as much energy into the grid as they draw, and pay their full share of grid connection costs, with legislation targeted for 2027. At the same time, transmission capacity in parts of western Sydney is reported to be largely exhausted for new large loads beyond 2033. Both point the next wave of development toward locations where new generation and transmission capacity already exist or can be built.
Water is the other half of the equation
Hyperscale data centres generate enormous heat, and cooling at that scale requires a reliable, high volume water supply. The smart answer is non potable water. Sites with access to raw, untreated industrial water for cooling do not compete with residential drinking supply, and regions with existing heavy industry water infrastructure hold a genuine advantage.
Why the Latrobe Valley answers both
Victoria’s Latrobe Valley now has significant data centre activity in motion across its major energy sites. Keppel has secured rights to lease a 123 hectare site near the former Hazelwood Power Station outside Morwell, reported to be worth around $10 billion, with gross power capacity of up to 720MW. The site sits at one of the state’s largest electricity nodes within the proposed Gippsland Renewable Energy Zone, zoned for data centre use, with the potential for a dedicated transmission connection to neighbouring terminal stations. EnergyAustralia has released plans for an Energy Security Precinct at the Yallourn site, investigating up to 300MW of gas generation, up to 2.7GW of battery storage, and land for two 1GW data centres, with the Wooreen battery already under construction. And AGL is planning to repurpose its 6,000 hectare Loy Yang site into the Latrobe Valley Integrated Energy Hub ahead of the power station’s 2035 closure, with extensive land and existing transmission infrastructure.
Keppel has pointed to clear pathways to non potable water for cooling at the Morwell site, and Gippsland Water has publicly confirmed it can supply raw, untreated water from existing entitlements without affecting drinking water reliability for residential customers. The region’s water infrastructure and entitlements were built to serve heavy industry, and that industrial water endowment is a core part of its appeal.
There is also a regional investment story that matters. With coal fired power station closures announced for 2028 and 2035, investment of this scale creates new pathways for a skilled local workforce and puts existing transmission, water and industrial land assets back to work. A region that powered Victoria for generations is well placed to host the infrastructure powering its digital economy. In our view, the region also offers what the proposed standards would reward, the ability to co-locate new generation and storage with the load itself, with connection infrastructure already in place and grid capacity opening as the coal fleet retires.
Solving siting does not solve delivery
Even with power and water answered, projects of this scale carry serious delivery risk. Contractor capacity is stretched nationally. Data centre construction draws heavily on specialised electrical, mechanical and HVAC trades that are in short supply, with every major project competing for the same limited workforce. Supply chains for critical equipment, from chips to switchgear to cooling plant, are currently cited as the most severe risk to deploying capital efficiently in this sector. And multi phase, multi billion dollar construction programs magnify the cost of every unassessed variation, every unscrutinised progress claim, and every schedule slip.
A group of specialist contractors has positioned itself in this space and built genuine data centre delivery capability, now carrying multi project portfolios for the major operators. That specialisation is good for the sector. It does not change the fundamental structure, the builder delivers the project and represents its own commercial interests under the contract.
For the owners, investors and developers committing this capital, someone still needs to manage the owner’s side of the contract, certify what is claimed, and provide independent assurance that delivery is tracking as reported.
The bottom line
Power and water decide where Australia’s data centres get built. Disciplined, independent project delivery decides whether they get built on time and on budget. Etairos provides client side project management, superintendent services, Technical Due Dilligence, and capital works oversight for industrial and infrastructure projects across VIC, NSW, QLD, SA and the ACT.
This article is general information only and is not legal or professional advice. Seek advice on your particular circumstances before acting.