Report tabled, rules coming: What the NSW Parliament's data centre inquiry means for industry

Many of the recommendations are addressed in the NSW Government's Data Centre Policy Framework and Guidelines (NSW Guidelines). It is now over to the NSW Government to respond to the Inquiry report and to consider whether any revision of the NSW Guidelines is warranted.

Context

The inquiry was established in January 2026 to examine whether New South Wales is equipped for the scale and pace of data centre development, in an environment where New South Wales hosts more than 90 operational data centres and a substantial pipeline of data centre projects.

Chaired by Greens MLC Abigail Boyd, the Committee's terms of reference were broad, spanning planning frameworks, electricity demand and emissions targets, water usage and cooling, local environmental and community impacts, land use and housing and governance, transparency and accountability.

The inquiry attracted 143 submissions, held 5 public hearings and conducted an on-site facility inspection. Submissions came from councils, utilities, climate bodies, industry groups and residents. Feedback ranged from calls for a moratorium on data centre approvals, to proposals to designate data centres as enabling economic infrastructure. We analysed the themes emerging from those submissions - and anticipated much of the report's focus on cumulative impacts, water and transparency - in Data centre of attention: unpacking NSW's Data Centre Inquiry's possible moves.

The Committee's findings

The report's central finding is structural and important: the NSW planning framework assesses data centres primarily as individual developments, even though many of their most significant impacts - on electricity networks, water systems, land supply and communities - are cumulative. The Committee found that New South Wales does not have a sufficiently integrated land-use strategy for managing the sector's growth, that current settings may underestimate future electricity demand and water supply constraints, and that the construction of facilities in developed urban areas risks compounding pressure on local infrastructure.

Among the many other findings in the Committee's report:

• on energy, the Committee found that the rapid growth in data centre electricity demand has the potential to hinder the State's progress towards its legislated emissions reduction targets if that demand is not matched by sufficient renewable energy generation and storage; and

• on water, the Committee heard evidence that Sydney's data centres currently draw predominantly on the potable supply, with Sydney Water projections cited during the inquiry suggesting that, without shifts to alternative water supplies, the sector could account for up to 25% of Sydney's drinking water demand by 2035.

The Committee's recommendations

The 26 recommendations cover planning, energy, water, environmental impact, community engagement and government oversight, with the key themes set out below:

• A State data centre strategy and coordinated approvals. The Committee recommended the NSW Government develop a new State data centre and AI strategy and improve coordination between the agencies, utilities and consent authorities involved in the approvals pipeline. This responds directly to the finding in the report that no single body currently has line of sight over the sector's cumulative footprint.

• Cumulative impact assessment and precincts. The Committee recommended that planning approval processes be reformed to assess the cumulative impacts of existing, approved and proposed facilities - not each project in isolation - and that designated data centre and innovation precincts be established to steer development towards locations with energy, water and land capacity and significantly reduced impacts on residential communities.

• Renewable energy requirements. The headline energy recommendation is that data centres source 100% of their energy from renewable sources matched on an hourly basis - a standard which is well beyond the annualised offsetting most operators currently rely on, and among the most stringent in Australia to date. The Committee also recommended incentives for demand flexibility, so that facilities can reduce or shift load during periods of peak demand, and more decisive action to reduce the sector's dependence on diesel backup generation.

• A user-pays approach to infrastructure. Consistent with the NSW Guidelines, the Committee supported data centres bearing the wider utility infrastructure costs which their projects generate, rather than those costs being socialised across electricity and water customers.

• Water discipline. The Committee recommended that the NSW Government work with water utilities and industry to accelerate the development of recycled water infrastructure required by data centres and encourage the use of recycled and rainfall-independent water sources for cooling, water efficiency targets and full-cost water pricing. This includes implementing the recommendations of IPART's current review of data centre water pricing.

• Data centre workforce development strategy. The Committee recommended that the NSW Government work with industry, TAFE NSW, universities and training providers to establish a coordinated data centre workforce development strategy.

• Data centre community benefit framework. The Committee recommended the NSW Government develop a community benefit framework to guide developers, councils and communities on delivering meaningful local benefits.

• Transparency. The Committee recommended mandatory improvements to transparency regarding data centre energy and water use, renewable energy procurement, emissions performance and compliance with energy efficiency standards. Public, verifiable reporting - rather than voluntary industry disclosure - was a consistent thread.

• Accountability. The recommendations extended to a whole-of-lifecycle public accountability and engagement framework for data centres. The Committee also recommended that the NSW Government consider legislation (and advocate to the Commonwealth) to attach legal and financial liability to AI models at all stages of their development and supply chain, “all the way down to data centres hosting and training them”.

• Data sovereignty. The Committee recommended an AI, digital and data sovereignty strategy focused on better securing government data, information and digital services.

• Copyright, ethical AI and economic flows. Having found that AI large language models are “built on the appropriation of copyrighted works”, the Committee recommended that the NSW Government look at mechanisms requiring data centre tenants and operators to support only “theft free and ethical” AI development, and advocate to the Commonwealth to strengthen, not weaken, Australia's copyright laws. It also recommended that the NSW Government consider requiring transparency of economic flows, including where profits go and how much value remains in Australia versus multinational parent companies.

Importantly, the Committee did not recommend a moratorium on data centre approvals. Minutes attached to the report record that members voted 6 to 1 to remove draft recommendations for State moratoriums on approvals, with the Chair casting the sole dissenting vote. The Chair also recorded her disappointment that the major parties declined to recommend that projects already in the planning pipeline comply with any new rules now being contemplated.

The reform agenda

The report is the latest instalment in a busy year of data centre policy activity, and some of its thinking is already reflected - albeit in different forms - in NSW government policy.

At a State level, the NSW Guidelines, released on 17 August 2026, already rest on a user-pays bargain: a faster, more certain State Significant Development planning pathway (a 75-day assessment commitment) in exchange for commitments to world-class energy, water, community and employment standards.

As we explained in NSW draws the line, the NSW Guidelines are accompanied by the Electricity Infrastructure Investment Amendment Act 2026 – which allows the Energy Minister to declare large load infrastructure access schemes governing grid connections of 5 MW or more - and an IPART review of water pricing for data centres. The Committee's report effectively argues the NSW Guidelines do not go far enough, particularly on energy accounting and mandatory disclosure.

Nationally, the report reinforces momentum that is already well established. National Cabinet agreed on 26 August 2026 to develop consistent mandatory national standards for data centre energy, water and land use, with Commonwealth legislation expected in early 2027 - developments we examined in Nine governments, one rulebook and in our analysis of the Commonwealth's subsequent consultation paper, Regulation of data centres and AI training: the Commonwealth asks the hard questions. Those national standards build on the Commonwealth's March 2026 expectations of developers, which we unpacked in Great expectations.

Finally, the Senate's Environment and Communications References Committee inquiry into AI data centres - which we examined in Watts on the line? - is due to report in mid-November.

Implications for industry

• Planning and environment cumulative impacts: If the Government adopts the Committee's planning recommendations:

  • cumulative energy, water, noise and amenity impacts - measured against existing, approved and proposed facilities in the same corridor - would become more significant assessment issues; and

  • strategic planning for data centres, including the establishment of serviced precincts, would influence where projects can proceed.

Early constraints analysis, strong community engagement and well-evidenced utility servicing strategies will increasingly determine both approval timeframes and conditions.

• Energy hourly matching: The recommended 100% hourly renewable matching standard is the report's most commercially significant proposal. Hourly matching requires a portfolio of generation, storage and firming that tracks a facility's load hour by hour - a materially more expensive proposition than annualised certificates or standard power purchase agreements (PPAs). Even if the NSW Government adopts a softer version, the direction is clear: data centre demand will increasingly need to be backed by additional renewable supply.

  While the investment signals on energy supply remain mixed, it is generally encouraging for renewable generation and storage developers - if a pathway to majority energy supply can be developed. However, there does remain broad scepticism around the ability to provide majority electrons for datacentres using remote and intermittent generation (even with BESS). Major new datacentre announcements are generally needing to be gas-generation linked as a parallel electricity supply model.

• Water full-cost pricing and recycled supply: The Committee's scrutiny of water use reinforces what the IPART pricing review and the NSW Guidelines already signal. Proponents should model water use on a full-cost basis, engage utilities early on recycled and rainfall-independent supply and treat water-efficient cooling as a competitive differentiator rather than a compliance afterthought. Sites with access to recycled water networks are likely to carry a lower regulatory and cost burden and a potential valuation premium.

• Reporting: For operators and their hyperscale customers, the reporting agenda evident in the Committee's report represents a significant shift. While the NSW Guidelines provide for increased transparency through public reporting, the Committee's report goes further. The Committee's recommendations on mandatory public reporting of energy use, renewable procurement, emissions and efficiency compliance would move that information into the public domain, with flow-on effects for colocation and hosting agreements, customer sustainability commitments and marketing claims (including greenwashing risk).

• Business continuity, AI model liability and copyright: Customers will want clarity on how their workloads would be affected if non-critical facilities are curtailed or suspended during resource constraints. The proposed classification framework, supply-chain liability for AI models and copyright “theft free” tenancy requirements could require operators to have more insight into how their capacity is used, impose rules about that and allocate liability for non-compliance. If the recommendations are adopted, those issues will need to be addressed in contracts involving data centre tenants and service customers.

• M&A and investment: For investors and acquirers, the report highlights a theme we have consistently raised: a data centre asset's value increasingly turns on its regulatory and infrastructure position. Due diligence on New South Wales assets should interrogate secured grid connection rights and queue position, PPA and firming portfolios (and their capacity to support tighter matching standards), water supply arrangements, compliance with the NSW Guidelines' performance measures and exposure to retrospective or transitional rules. Compliance capex assumptions in financial models warrant stress-testing against the Committee's recommendations.

Next steps

The NSW Government will now consider and respond to the report. Several recommendations - notably hourly matching - go well beyond current government policy.

However, the overlap between the report, the NSW Guidelines and the Commonwealth's proposed mandatory national standards means that the broad direction of the Committee's recommendations - increased cumulative assessment and strategic planning, additional renewable supply, water discipline, user-pays infrastructure and mandatory transparency - may not be far from where regulatory standards could ultimately land.