Sustainable Data Centre Action plan: new energy, water and planning requirements
Victoria has unveiled new planning and sustainability requirements for data centres, including a 150-metre residential buffer, restrictions on drinking water for cooling and a requirement for new facilities to support their operational electricity with new renewable generation and storage.
The Victorian Government’s Sustainable Data Centre Action Plan introduces buffer and sustainability requirements, imposing action plan new obligations across energy, water, land use and community benefit. It signals a significant shift in the regulatory landscape for an industry that, according to the action plan, delivered $5.8 billion in capital expenditure to Victoria last year.
The changes come amid concerns about the exponential rise of data centres and the demand placed on the grid. Nationally, data centres account for approximately 3 per cent of National Electricity Market grid-supplied electricity today and are forecast to rise to around 6 per cent by 2029–30 and 12–13 per cent by 2035–36 under AEMO’s central Step Change scenario.
In releasing the action plan, Premier Ben Carroll and Minister for Artificial Intelligence and Digital Economy Anthony Carbines described the measures as the ‘strongest, clearest data centre rules in the country’.
The action plan follows the August 2026 National Cabinet agreement that large data centres require consistent, mandatory national standards covering energy, water and land-use impacts. Commonwealth legislation is proposed for early 2027 and is intended to complement state planning and approval processes.
Importantly, for projects already in the pipeline, the new requirements will not apply retrospectively to planning applications that have already been lodged.
What are the key changes for Victorian data centres?
- Data centres must ‘bring their own’ renewable energy supply: new facilities must offset actual operational electricity use by investing in new renewable generation and storage and cover all connection costs and network augmentations.
- Residential zones are off limits: data centres will be prohibited in residential zones, with a 150-metre buffer between a data centre building and residential buildings. .
- Rural locations will be restricted: data centres will be prohibited in rural zones unless they are located near and able to be serviced by critical energy and water infrastructure.
- Drinking water cannot be used for water-intensive cooling: facilities using water-intensive cooling must source recycled or non-drinking water or have a transition agreement with their water corporation.
- A Local Investment Guarantee will apply: new data centres will be expected to deliver local community benefits, which may include jobs, TAFE partnerships, parks and local procurement.
- Existing applications are not affected: the new requirements will not apply retrospectively to applications already lodged.
For developers, operators and investors, the changes will have significant implications for site selection project design, infrastructure requirements and upfront costs.
New planning rules will affected where data centres can be built
The action plan introduces a formal land use definition for data centres in Victorian planning schemes:
’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.’
It also establishes locational controls that will materially affect site selection. Developers and speculators who have been acquiring sites will now need to carefully review the new rules to ensure their sites remain suitable.
While the new requirements focus on residential and rural zones, the action plan also states that the existing policy document, Planning for Melbourne’s Green Wedges and Agricultural Land Action plan 2024 has also committed to prohibiting new data centres in Green Wedge Zone land.
The action plan also states that Victorians expect data centres to be located away from schools and childcare centres, although the new L1-L7 requirements do not expressly prohibit these locations.
The key locational requirements are:
- Data centres will be prohibited on residential-zoned land and a 150-metre buffer between a residential building and a proposed data centre building will be enforced via the planning system (L1).
- In rural zones, data centres will be prohibited unless located near and able to be serviced by critical infrastructure such as major transmission infrastructure, substations, renewable energy facilities, battery energy storage systems or recycled water infrastructure (L2).
- A new statewide planning policy will be developed to guide location, design, scale and infrastructure requirements, with detailed siting and built-form guidance to be developed with stakeholder input in 2027 (L3).
The action plan also extends referral status for WorkSafe Victoria, Fire Rescue Victoria, VicGrid and the relevant water corporation, in addition to the EPA which is already a referral authority (L6).
Where an application is progressed through the Development Facilitation Program, the Minister for Planning will serve as the responsible authority. Councils may still be the responsible authority if a developer chooses that pathway.
Existing state-wide industrial commercial noise limits will apply to data centre sites. This includes a night-time cap of 55 dB(A) anywhere in Victoria, with penalties for tonal noise characteristic of cooling equipment (L4).
Backup diesel generation must be restricted to emergencies and mandatory testing and must deploy best-available technology (L5).
In addition to the standard statutory public notice and objection rights, proponents are required to actively engage with local communities, First Peoples, and host Councils prior to and throughout the approval process. However, no specific details are provided at this stage.
Proponents are also expected to engage early with VicRoads, telecommunications and fibre providers to coordinate infrastructure requirements including shared underground conduits ‘where possible’ (L7).
Data centres must ‘bring their own’ renewable energy supply
The centrepiece of the action plan’s energy requirement is that data centres must ’bring their own supply’ (E1).
This means proponents must offset their actual operational electricity use by investing in new renewable energy generation and storage. Detailed compliance, verification and firming requirements are to be finalised in step with Commonwealth standards.
Data centres must also:
- cover all connection costs and network augmentations required as a direct result of new investment (E2);
- participate in demand flexibility services (E3);
- achieve high levels of power usage effectiveness designed to industry best-practice targets (E4); and
- ’contribute positively’ to Victoria's legislated emissions reduction and renewable energy targets (E5).
VicGrid will become a referral authority through the planning process, providing expert input to ensure data centres do not negatively affect the grid.
The action plan also proposes further work to develop pathways for co-location with complementary industries, including shared infrastructure and essential services; develop best practice guidelines for green power procurement; and work with the Energy and Climate Change Ministerial Council to develop National policy settings for additionality requirements.
New water rules restrict drinking water for cooling
The Water Act 1989 (Vic) already provides a safeguard to water supply, with water corporations able to refuse a connection or impose conditions to protect water supply for existing users. The action plan adds new upfront requirements at the planning application stage.
Facilities using water-intensive cooling are expected to meet cooling needs from recycled or other non-drinking water sources or have an agreement with their water corporation to transition when supply becomes available (W1).
Where recycled water is not yet available, operators must agree on a plan to offset interim drinking water use through funding agreements or water efficiency programs (W2).
Facilities relying on drinking water as an interim measure must be designed so water use can be reduced when drought restrictions are imposed (W3).
All centres must achieve a design water usage effectiveness (dWUE) of ≤ 1.0 for potable water or ≤ 1.6 for non-potable water, measured in line with ISO/IEC 30134-9:2022 (W4).
Operators must also meet the full cost of water infrastructure required to service their connection or contribute to costs with other users where the demand brings forward planned augmentation, (W5) and align with mandatory minimum water-use standards being developed nationally (W6).
The action plan notes that Melbourne Water currently produces the largest volume of Class A recycled water in Australia and points to the Amazon Web Services data centre in Melbourne's west, supplied by the Melton Recycled Water Plant, as a working example of recycled water use for data centre cooling.
Local Investment Guarantee to target jobs and community benefits
The action plan also introduces requirements aimed at ensuring host communities benefit from new data centre investment.
Operators will be required to support training of construction and operational workers through apprenticeships, TAFE partnerships, bursaries or scholarships connected to real employment (J1).
They must also ‘prioritise Victorian content and local suppliers’ (J2), coordinate with industry, government and unions on skills development (J3), and work with local training providers and employment services where facilities are in regional Victoria or communities with high unemployment (J4).
These requirements will be supported through a new Local Investment Guarantee, to be developed in consultation with local government, industry and communities.
The guarantee is intended to deliver proportionate, enduring and measurable local impact beyond regulatory and compliance expectations. These may include local employment, skills development, training partnerships, engagement with First Nations communities, local procurement and improvements to local amenity.
New ‘Investment Front Door’ to facilitate data centre applications
Alongside the new requirements, the action plan establishes a framework for government facilitation of applications.
Key commitments include a single ‘Investment Front Door’ entry point for major data centre proposals, pre-application information covering site identification and infrastructure availability, coordinated regulator input from VicGrid, water corporations, Energy Safe Victoria, WorkSafe and other regulators.
Projects of state significance will also have access to an escalation pathway through the Investment Coordinator-General.
What do the Victorian data centre rules mean for developers?
The new rules provide greater clarity about what will be expected of future data centre developments in Victoria, but they also bring significant upfront infrastructure and investment requirements.
Developers with applications already in the pipeline will benefit from the decision not to apply the requirements retrospectively. A spokesperson from the Victorian Green described this as a ‘huge loophole’ given the 19 applications currently in the pipeline.
The Data Centre Council of Australia has welcomed the greater regulatory clarity but expressed surprise at the 150-metre setback requirement. It has warned that the requirement could make some projects economically unviable and that investment may flow to other states.
Several important details also remain to be settled:
- detailed compliance, verification and firming requirements for the ‘bring your own supply’ energy mandate, which will be finalised in step with Commonwealth standards;
- how Victoria’s sustainability requirements will interact with the proposed Commonwealth standards intended to address energy, water and land-use;
- detailed siting, design and built-form guidance, which will be developed with stakeholder input in 2027;
- the Local Investment Guarantee will be developed with local government and industry ahead of implementation; and
- planning scheme amendments to implement the zone prohibitions and extend mandatory referrals to VicGrid, water corporations and other regulators are yet to be introduced.
For developers and investors considering new Victorian data centre projects, site selection and infrastructure availability will now need to be assessed against a much broader set of requirements at an early stage. Energy and water strategy, in particular, are becoming integral to planning and project feasibility rather than matters to be addressed later in development.
How we can help
Our environment and planning, energy and ESG lawyers advise data centre developers, renewable energy proponents, water corporations, local governments and community stakeholders on the planning, environmental, energy and regulatory issues arising from major infrastructure development.
For more information or advice on how the action plan may affect your projects or interests, please contact our team.
Contacts
