Plans for a large-scale data centre, dubbed an "AI factory," in Southland face several significant obstacles despite previous regulatory approvals. Datagrid, the Singapore-backed company behind the project, has secured key consents for its proposed 78,000-square-meter facility on a 42-hectare site in Makarewa, about 15 minutes north of Invercargill. However, critical challenges remain around power supply, funding, and the development of a supporting international fibre optic cable.

A primary hurdle is the approval and connection from Transpower, New Zealand’s national grid operator. The data centre’s first phase is expected to require a peak power demand of 280 megawatts, with plans eventually scaling up to 1,000 megawatts. For comparison, the nearby Rio Tinto aluminium smelter in Bluff consumes 572 megawatts, accounting for roughly 13% of the country’s electricity supply. Transpower has been assessing Datagrid’s application for about a year but remains in an exploratory phase. Matt Webb, Transpower’s grid development executive general manager, explained that the process involves technical assessments, network impact evaluations, and feasibility studies concerning the proposed grid connection, including a new substation that Datagrid would finance. Once an agreement is reached, the construction timeline is estimated at around two years. On the retail front, electricity retailer Mercury has signed an option agreement to supply Datagrid with 140 megawatts for 15 years, reflecting the data centre’s still-developing status pending a final investment decision.

Funding is another critical challenge. The project’s estimated cost of NZ$5 billion far exceeds typical data centre investments in New Zealand; for context, Microsoft’s Westgate facility in Auckland cost roughly one-fifth as much. Datagrid’s founder and executive Remi Galasso, a former French telecommunications executive, described the fundraising process as ongoing. Galasso has a track record of securing large capital sums, including for the Hawaiki Cable, an undersea fibre optic project linking New Zealand with Australia, the United States, and Pacific nations. The Hawaiki Cable was subsequently sold to Singapore’s BW Group, which now holds a 37.5% stake in Datagrid, while Galasso’s family trust retains 62.5%. Additional financial backing may come through vendor financing from technology companies such as Nvidia, which have allocated substantial funds to support AI-related infrastructure, though this funding environment may be tightening.

An international fibre optic cable, known as the Tasman Ring Network, is also essential to Datagrid’s ambitions. The cable would connect Bluff with Australian cities including Sydney, Melbourne, and Hobart, and extend across New Zealand to Auckland, New Plymouth, and Greymouth. This link is vital to allow the Southland data centre to service global AI computing demands. The Ministry of Business, Innovation and Employment noted in a June 2025 briefing that the Tasman Ring is expected to be operational by 2027, with a projected capacity of 540 terabits per second to support data-intensive applications such as training large language models. Chorus, the telecommunications company initially slated as cable partner, withdrew from the project last year, citing lower-than-expected demand and challenges with cable-laying ship availability, pushing realistic completion timelines beyond 2030. Since then, Datagrid has taken the project in-house and rebranded it as the Datagrid Tasman Ring.

According to Datagrid’s environmental consent application, the AI factory is expected to generate up to 5,400 construction jobs and sustain 72 permanent positions once operational. The broader economic impact is estimated to add NZ$36 million annually to the country’s GDP. If successful, Datagrid’s project would outpace other recent large data centre initiatives in New Zealand that have stalled or been abandoned, including Amazon’s halted Westgate scheme and Microsoft’s delayed West Auckland site at Whenuapai, both of which shifted strategies toward partnering with existing data centre operators.