Thirsty work: how the rise of massive datacentres strains Australia’s drinking water supply

The demand for use in cooling in Sydney alone is expected to exceed the volume of Canberra’s total drinking water within the next decade

As Australia rides the AI boom with dozens of new investments in datacentres in Sydney and Melbourne, experts are warning about the impact these massive projects will have on already strained water resources.

Water demand to service datacentres in Sydney alone is forecast to be larger than the volume of Canberra’s total drinking water within the next decade.

In Melbourne the Victorian government has announced a “$5.5m investment to become Australia’s datacentre capital”, but the hyperscale datacentre applications on hand already exceed the water demands of nearly all of the state’s top 30 business customers combined.

Technology companies, including Open AI and Atlassian, are pushing for Australia to become a hub for data processing and storage. But with 260 datacentres operating and dozens more in the offing, experts are flagging concerns about the impact on the supply of drinking water.

Sydney Water has estimated up to 250 megalitres a day would be needed to service the industry by 2035 (a larger volume than Canberra’s total drinking water).

Cooling requires ‘huge amount of water’

Prof Priya Rajagopalan, director of the Post Carbon Research Centre at RMIT, says water and electricity demands of datacentres depend on the cooling technology used.

“If you’re just using evaporative cooling, there is a lot of water loss from the evaporation, but if you are using chillers, there is no water loss but it requires a huge amount of water to cool,” she says.

While older datacentres tend to rely on air cooling, demand for more computing power means higher server rack density so the output is warmer, meaning centres have turned to water for cooling .

The amount of water used in a datacentre can vary greatly. Some centres, such as NextDC, are moving towards liquid-to-chip cooling, which cools the processor or GPU directly instead of using air or water to cool the whole room.

NextDC says it has completed an initial smaller deployment of the cooling technology but it has the capacity to scale up for ultra-high-density environments to allow for greater processing power without an associated rise in power consumption because liquid cooling is more efficient. The company says its modelling suggests power usage effectiveness (PUE, a measure of energy efficiency) could go as low as 1.15.

The datacentre industry accounts for its sustainability with two metrics: water usage effectiveness (WUE) and power usage effectiveness (PUE). These measure the amount of water or power used relative to computing work.

WUE is measured by annual water use divided by annual IT energy use (kWh). For example, a 100MW datacentre using 3ML a day would have a WUE of 1.25. The closer the number is to 1, the more efficient it is. Several countries mandate minimum standards. Malaysia has recommended a WUE of 1.8, for example.

But even efficient facilities can still use large quantities of water and energy, at scale.

NextDC’s PUE in the last financial year was 1.44, up from 1.42 the previous year, which the company says “reflects the dynamic nature of customer activity across our fleet and the scaling up of new facilities”.

Calls for ban on use of drinking water

Sydney Water says its estimates of datacentre water use are being reviewed regularly. The utility is exploring climate-resilient and alternative water sources such as recycled water and stormwater harvesting to prepare for future demand.

“All proposed datacentre connections are individually assessed to confirm there is sufficient local network capacity and operators may be required to fund upgrades if additional servicing is needed,” a Sydney Water spokesperson says.

In its submission to the Victorian pricing review for 2026 to 2031, Melbourne Water noted that hyperscale datacentre operators that have put in applications for connections have “projected instantaneous or annual demands exceeding nearly all top 30 non-residential customers in Melbourne”.

“We have not accounted for this in our demand forecasts or expenditure planning,” Melbourne Water said.

It has sought upfront capital contributions from the companies so the financial burden of works required “does not fall on the broader customer base”.

Greater Western Water in Victoria had 19 datacentre applications on hand, according to documents obtained by the ABC, and provided to the Guardian.

The Concerned Waterways Alliance, a network of Victorian community and environment groups, has flagged its concerns about the diversion of large volumes of drinking water to cool servers, when many of the state’s water resources are already stretched.

Cameron Steele, a spokesperson for the alliance, says datacentre growth could increase Melbourne’s reliance on desalinated water and reduce water available for environmental flows, with the associated costs borne by the community. The groups have called for a ban on the use of drinking water for cooling, and mandatory public reporting of water use for all centres.

“We would strongly advocate for the use of recycled water for datacentres rather than potable drinking water.”

Closed-loop cooling

In hotter climates, such as large parts of Australia during the summer months, centres require more energy or water to keep cool.

Danielle Francis, manager of customer and policy at the Water Services Association of Australia, says there isn’t a one-size-fits-all approach for how much energy and water datacentres use because it will depend on the local constraints such as land, noise restrictions and availability of water.

“We’re always balancing all the different customers, and that’s the need for residential areas and also non-residential customers, as well as of course environmental needs,” Francis says.

“It is true that there are quite a lot of datacentre applications. And the cumulative impact is what we have to plan for … We have to obviously look at what the community impact of that is going to be.

“And sometimes they do like to cluster near each other and be in a similar location.”

Cover photo:  Sydney Water has estimated up to 250 megalitres a day would be needed to service the datacentre industry by 2035. Illustration: Richard Giliberto/The Guardian