Victoria will implement new regulations requiring all new data centres to secure their own renewable energy, pay full connection costs to the electricity grid, and be prohibited from operating in residential zones under a plan unveiled by Premier Ben Carroll. The government describes these measures as the nation’s toughest restrictions on data centre development.
The Sustainable Data Centre Action Plan, set to be released on Tuesday, aims to address increasing community concerns about the rapid growth of these energy-intensive facilities. Carroll emphasized the need for data centres to be self-powered and financially responsible for their impact on infrastructure. “In Victoria, we set the rules – data centres must power themselves, protect homes and pay their way,” he said.
Under the new guidelines, data centres will be required to use recycled or non-drinking water for cooling purposes. Operators that cannot immediately meet this standard must offset their consumption of drinking water and contribute to infrastructure upgrades. Although data centres currently consume less than 1 percent of Victoria’s drinking water for cooling, the government asserts the target for this use should be zero.
The planning changes also introduce zoning restrictions that ban data centre construction in residential areas, near schools, and childcare centres, while limiting development in rural regions lacking adequate infrastructure. A mandatory 150-meter buffer zone between data centre buildings and homes will be enforced, and developers must submit traffic management plans for both construction and operations to reduce disruption.
To ensure local communities benefit, the government plans to establish a Local Investment Guarantee requiring companies to provide direct contributions to host areas. Though specifics will be refined after consultation, the initiative could support local employment, training programs, TAFE facilities, parks, and other community infrastructure. Developers will also be obligated to prioritize training Victorian workers and use local recruitment services when hiring.
Victoria’s data centre industry attracted $5.8 billion in capital spending last year, with major investments from technology firms such as Amazon and Microsoft. Existing regulations covering noise, fire safety, and community consultation will remain in force alongside the new requirements.
State Labor’s introduction of the plan ahead of the November 28 election signals an attempt to differentiate its approach from the opposition, framing its policies as more protective of communities and more demanding of technology companies. The government created the portfolio for Artificial Intelligence and the Digital Economy in July with Senior Minister Anthony Carbines at its helm, although the new strategy aligns closely with federal government expectations.
Federal Assistant Minister for the Digital Economy Andrew Charlton recently criticized data centres for excessive power and water consumption and insufficient community returns, stating, “We need data centres, but only the good ones.”
Carbines stressed the importance of data centres in supporting critical services such as banking, healthcare, transport, and emergency operations, saying investment from companies like Amazon and Microsoft would continue "within sensible guardrails."
Planning Minister Sonya Kilkenny underscored the environmental and community protection elements of the new rules. “Data centres must bring their own supply to protect our energy costs – and they can’t be built near homes,” she said. “Under our rules, Victorian communities will benefit with a Local Investment Guarantee.”