A global assessment of planned data centres has highlighted significant climate-related vulnerabilities in digital infrastructure hubs. As data centre development accelerates across Australia, researchers are urging governments to ensure that expansion is matched by robust planning to mitigate potential disruptions.
Climate Hotspots Emerge for Digital Infrastructure
Analysis of nearly 2,600 proposed data centres worldwide has revealed that many rapidly expanding digital infrastructure centres are situated in areas prone to climate risks. The study found that 154 data centres, or 6 percent, face potential physical damage or operational interruptions due to climate change. Southeast Asia is identified as the most vulnerable region, with 20 percent of its data centres currently at high risk, a figure projected to at least triple by the end of the century.
Karl Mallon, director of science and technology at XDI, an organisation that assesses physical climate risks, noted that discussions around data centre growth have largely centred on energy and water demands. “But physical climate risk is becoming an increasingly important consideration in its own right,” Mallon stated. “The question is no longer simply where the next generation of digital infrastructure gets built, but whether those assets can remain operational, insurable and economically resilient over their intended life.”
Mallon pointed out that regions identified as high risk often experience frequent natural hazards and may have less stringent planning regulations. He cited examples like Texas and Florida in the United States, where data centres are being established in locations that might not be ideal from a climate risk perspective, potentially due to weaker planning laws.
Australia’s Growing Vulnerabilities
While Australia ranks 22nd globally for the risk of physical damage to its planned data centres, the report indicates the country is facing one of the most rapid increases in climate risk over time. The analysis considered risks from 11 hazards, including flooding, coastal inundation, bushfires, and tropical cyclones. Extreme heat has emerged as a primary challenge for Australia’s digital infrastructure.
“We can design cooling systems but we design them on what our normal temperature range is,” Mallon explained. “Our temperatures are going to go up quite a lot and therefore we need to be thinking about extreme heat and extremely hot days as being something that we need to plan for.”
Specific concerns were raised for New South Wales and Queensland, where planned data centres were found to be exposed to flooding risks. A data centre in Western Australia was highlighted as being at high risk from bushfires. Mallon also questioned the resilience of supporting infrastructure: “A lot of the infrastructure around data centres is potentially more at risk, so electricity supply, telecommunication connections, water for cooling. Is the infrastructure that supports these data centres as resilient as the data centres themselves?”
The Allure of Australia for Data Centre Investment
The United States currently leads the world in AI infrastructure with over 5,000 data centres, but is experiencing limitations in energy availability and suitable locations. As global demand for data centres persists, investors are seeking opportunities elsewhere.
Belinda Dennett, chief executive of Data Centres Australia, highlighted the country’s appeal to investors and operators. “Australia has a lot of the attributes that investors, that data centre operators look for,” Dennett said. “Availability of land, which is something many of our neighbouring countries in the Asia region don’t have, the potential for the abundance of renewable energy, which certainly the global tech customers are looking for.”
Dennett added that the shift towards renewable energy is a significant factor in site selection for digital infrastructure. “Markets that solve this challenge are the ones that are going to benefit from this data centre boom opportunity,” she stated.
Australia currently hosts 162 operational data centres, with an additional 90 in development. Investment in the sector has surged, from over $460 million in 2023 to an estimated $6.8 billion projected for 2026. Site selection criteria for operators include power availability, fibre optic connectivity, water access, and proximity to a skilled workforce and technical support, often leading to development on urban fringes. Melbourne and Sydney are emerging as key digital infrastructure hubs.
Dennett mentioned that companies are increasingly using AI models to inform site selection, incorporating data on climate change and community sentiment. “AI, the thing that we’re building a lot of data centres for, is being used in how we make decisions about where to locate new builds,” she noted. “There are a whole bunch of steps that an operator has to go through to get planning approval. They are extremely robust. That process needs to be faster, not less rigorous, but faster because countries are competing. Speed to market is the most critical thing.”
Government Guidelines and Future Planning
Federal government guidelines released earlier this year encourage data centre developers to co-locate renewable energy projects and battery storage to manage energy supply and transmission costs. Operators are also advised to implement sustainable solutions to minimise water consumption and build positive relationships with local communities.
During a recent meeting of energy and climate ministers, most states agreed that data centres should be required to fully offset their energy consumption with additional renewable energy generation. The Australian Energy Market Commission has been tasked with examining potential legislative changes to ensure data centres contribute positively to the energy transition and do not increase energy prices.
Federal Energy Minister Chris Bowen expressed the government’s desire for digital infrastructure to be an “asset to the energy grid, not a strain.” He stated, “If data centres want to benefit from Australia’s energy grid, we think they should do their bit to strengthen it. It’s clear that the overwhelming majority of states agree.”
Queensland Energy Minister David Janetzki emphasised the state’s commitment to affordable and reliable energy, indicating that further analysis of costs, benefits, and risks is required before agreeing to national proposals that could impact Queensland’s energy system and consumers’ electricity bills.
Calls for Strategic Planning
Nicole Bennetts, head of policy and advocacy at the Planning Institute of Australia, described data centres as critical infrastructure vital for economic transformation. However, she stressed the need for enhanced scrutiny of development locations before the approval stage. “It’s about doing the strategic planning at the front end so that we can say these are the best locations for data centres,” Bennetts said. “Renewable energy zones came out of an up-front strategic planning process where they said these are the best locations for wind generation, solar generation and so forth. Whether or not it’s about identifying wholesale areas for data centres or is it more about identifying those areas where there’s the grid connectivity, there’s not going to be climate risk, they’re not too close to residential areas.”
Bennetts suggested that while Australia may not need a moratorium like Singapore’s, which was implemented to moderate data centre growth, it could benefit from mapping ideal locations for various scales of data centres while simultaneously assessing proposals. This approach, she argued, could expedite the assessment process by providing greater certainty for investors.
Future Capacity and Economic Opportunity
Australia’s data centre capacity is projected to grow from 1.4 gigawatts in 2025 to over 3 GW by 2030. However, forecasts beyond this period are less certain and depend on the progression of major projects through planning stages.
Mallon highlighted that planned data centres offer a unique window of opportunity for proactive decision-making. “Decisions make today about site selection, engineering standards and resilience investment may materially influence future performance, insurability and operational continuity,” he commented.
Dennett views digital infrastructure as a “once in a generational opportunity for Australia to transform its economy.” She added, “For so long we’ve been dependent on resources and mining exports and this really is the new economy, exporting intelligence to the region, building the infrastructure here so we have a say in how AI is created, how it’s produced. Making sure we own more of the value chain and the jobs that come from that, that’s the opportunity here for Australia and we think we should seize it.”
