Australia’s $175bn Data Centre Boom Faces Infrastructure Hurdles

Australia’s $175 billion surge in data centre construction is surging ahead, positioning the nation as the globe’s second-biggest hub for future investments—just behind the United States. The rapid expansion stems from hyperscalers, neocloud providers, and AI firms driving unprecedented demand, which is funneling billions into new builds at an accelerating clip.

Securing electricity, accommodating developments within communities, and deciding who pays for supporting infrastructure are proving to be less straightforward. A state parliamentary inquiry is examining how such developments should be accommodated, with Tasmania representing only a fraction of what is planned nationally.

Data Centre Investment

Westpac research estimates that there are $175 billion worth of developments in the national pipeline, with Australia having an opportunity to attract new capacity as established data centre markets overseas become more constrained by land and power. This expansion is not without headwinds or investment risks, with hyperscalers announcing significant capital expenditure plans and governments keen to incentivise onshore capacity.

More complicated financing structures are funding new capacity, while power shortages and tighter approval requirements are increasing costs and extending timelines. Some jurisdictions are also adopting a “BYO infrastructure” approach, requiring developers to finance grid upgrades or offset increased power prices.

In the US, planning frameworks, electricity pricing, and infrastructure requirements are being reconsidered as data centres place larger demands on local power networks. Community pushback is resulting in moratoriums and project delays overseas, highlighting the need to understand the complexities of data centre investment.

Financing and Regulation

Modern data centres are extraordinarily capital-intensive, with facilities using high-density racks and advanced cooling costing an estimated $10-$20 million per megawatt to construct. This capital intensity has led to more creative and less transparent layers in their financing structures, with some deals involving six to eight layers of financing.

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According to BofA Global Research, asset-backed issuance for data centres surpassed $25 billion in 2025, with $128 billion of data centre debt set to mature between 2025 and 2028. As those loans fall due, developers may need to refinance at higher costs or find additional capital, potentially reducing investor returns.

Regulation is heating up, with over a dozen US states and 100 local governments considering or enacting a pause on new data centre development. The Australian Energy Market Operator forecasts electricity demand from data centres to climb almost sevenfold over the next decade, prompting calls for mandatory national standards covering data centre energy, water, and land use.

The proposed reforms would require large data centres to underwrite their own new power supply and pay their full share of grid connection costs, with separate “causer pays” reforms potentially leaving developers footing the bill for new transmission infrastructure. This could bring Australia closer to the “BYO-power” approach in the US, where large corporate data users are signing long-term power purchase agreements with infrastructure investors to secure electricity.

A proposed $1.1 billion data centre in Hazelmere, WA, was withdrawn in May 2026 following nearly 1,900 public submissions, most in opposition, highlighting the need for community risks to be sufficiently resolved. Data centres can also expand local tax bases and construction activity, even if they create few permanent jobs once operational.

The potential requirement for data centres to secure their own electricity could redirect a considerable share of the industry’s investment towards power producers, with Westpac estimating the domestic pipeline could generate a further $20-$50 billion in associated renewable energy investment. This spending could support a substantial expansion in privately financed generation and storage.

Long-term electricity contracts would allow investors to assess the cost of providing additional capacity against revenue already committed to it, potentially supporting an investment in the power supplying the data centre without requiring investors to finance or own the facility itself. The demand underpinning a new data centre can therefore support an investment in the power supplying it.