A planned large-scale artificial intelligence manufacturing facility in Southland has raised concerns about its potential impact on local water resources and the adequacy of New Zealand’s existing regulatory framework. The Singapore-based company Datagrid has secured 10 resource consents this year for the development of a 78,000-square-meter AI factory in Makarewa, with permission to extract more than 600,000 liters of groundwater daily and discharge approximately 5,000 liters of treated wastewater.

Scheduled to open in 2028, the facility is poised to become the country’s second-largest single electricity consumer, following the aluminium smelter at Tiwai Point near Bluff. While Datagrid asserts that the plant will primarily rely on rainwater harvesting rather than groundwater extraction, the scale of the consents granted has drawn scrutiny from water management experts.

Evan Vaughters, chair of a climate change research group at Water New Zealand and an experienced engineer in water consents, expressed reservations about whether the current resource management system can adequately address the long-term effects of such hyperscale data centers. Speaking on a national radio program, he cautioned that the volume of water consented—comparable to the daily use of a town the size of Kaikōura—could have unforeseen consequences that existing consent conditions do not fully address, particularly in terms of ongoing monitoring.

Data centers typically require large volumes of water for cooling purposes, and the discharge of warmer wastewater may demand additional energy to meet environmental standards before release. Vaughters emphasized broader resource allocation questions, highlighting both the sustainability of drawing significant quantities from a finite groundwater source and the implications for regional energy demand. He suggested that while localized impacts might be mitigated, policy frameworks should consider whether such water and energy use constitutes the best application of scarce resources in the context of climate change.

Vaughters also pointed out that current regulatory schemes were developed before the emergence of data centers as major consumers of water and power. He recommended looking to international examples for updated governance models, naming Australia and the U.S. state of New York as jurisdictions adopting more cautious or integrated approaches to data center approvals. In particular, New York recently imposed a moratorium on new data centers pending the implementation of more comprehensive regulations.

Responding to concerns, Datagrid’s executive chair Remi Galasso declined an interview but issued a statement underscoring a distinction between the maximum water volumes permitted under the consents and the anticipated actual water use of the facility. Galasso highlighted the company’s focus on sustainability, noting that Invercargill’s cool climate allows reliance on free air cooling methods, reducing the need to draw groundwater.

As the AI factory project moves forward, questions remain about how New Zealand’s resource management system will adapt to new industrial demands and balance growth with environmental stewardship.