The Data Centre Backlash Is Legitimate, Will It Threaten Companies like NextDC?

The global boom in artificial intelligence and cloud computing has turbocharged demand for data centres, but also turbocharged a data centre backlash. In Australia (and elsewhere), demand for data centres is colliding hard with electricity and water (two of the most important but finite resources on the planet) and the friction is producing a backlash. And this backlash is grounded less in emotion than in arithmetic.

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The Scale of the Problem

The numbers frame the issue plainly. The Australian Energy Market Operator estimated in 2025 that data centres will consume around 6% of grid-supplied electricity by 2030, rising to 12% by 2050, up from roughly 2% in 2024-25. To put that in commercial terms, research from Baringa for the Clean Energy Finance Corporation found that data centre expansion alone could drive a 26% rise in wholesale electricity prices in New South Wales and 23% in Victoria by 2035. That is not a niche environmental concern, nor something that can be resolved by Trump ‘chickening out’ on Iran. We are talking about is a cost-of-living issue that affects every household and business on the grid.

Water consumption is equally striking. In Sydney, data centres currently consume around 3.5 billion litres of potable water per year. However, Sydney Water has informed IPART that data centre demand could reach up to 250 megalitres per day by 2035. Such an increase would represent a substantial step-change in total system demand for a city that already faces long-term supply pressures.

Why Do Data Centres Consume So Much?

The resource intensity is structural, not incidental. Modern data centres, particularly those optimised for AI workloads, pack enormous amounts of processing power into relatively small physical footprints. That density generates heat, and heat has to go somewhere.

The dominant cooling method has long been evaporative cooling, which works by passing hot air over water-soaked surfaces. It is highly effective and relatively cheap, but it consumes large volumes of potable water in the process. In 2022, Google data centres consumed around 5 billion gallons of potable water globally for cooling, while Microsoft’s water use rose by 34% and Google’s by 20% in the same period.

On the electricity side, the issue is two-fold. First, the servers themselves draw continuous, large-scale power – AI training runs in particular can draw hundreds of megawatts for sustained periods. Second, cooling systems add a further load on top. The efficiency of a data centre is measured by its Power Usage Effectiveness (PUE), which is the ratio of total facility energy to the energy actually used by IT equipment. The global colocation average PUE sits around 1.7, meaning for every watt delivered to a server, 70 cents in energy is spent on overhead, mostly cooling. Leading facilities are now achieving closer to 1.4, but the AI-driven push to pack ever-greater compute density into facilities is making efficiency harder to maintain.

Is the Data Centre Backlash Real?

Yes, and it is broadening. It began as community-level resistance in individual cities. In The Dalles, Oregon, Google’s facilities account for more than a quarter of the city’s water supply, prompting pushback from local communities. Protests in Uruguay and a February 2024 court ruling in Chile mandating climate-sensitive planning underscore growing resistance to AI data centre projects draining vital resources.

In Australia, the backlash has moved from grassroots to institutional. A coalition of climate groups, unions and renewable energy organisations has demanded that new data centre facilities provide their own firm renewable energy sources or face community opposition, with commentators warning that social backlash appears inevitable unless the industry stops freeloading on Australia’s clean energy. Industry demand for electricity from data centres is forecast to surge from 3 TWh to 30 TWh by 2035. This would be a tenfold increase that renewable energy developers argue the sector has no right to simply absorb from the grid without contributing new generation capacity.

Could This Threaten Companies Like NextDC?

NextDC is the dominant listed data centre operator in Australia, with facilities across every major capital and an ambitious expansion pipeline. In January 2025 alone, the company announced the acquisition of a 550MW site in Sydney. At that scale, resource constraints and regulatory headwinds are material business risks, not theoretical ones.

The threat comes from several directions. Regulatory tightening could raise the cost of new approvals or impose mandatory clean energy procurement requirements that reduce margin. Grid congestion or access restrictions could delay or limit new capacity coming online. And reputational risk, while currently manageable, could intensify if community opposition hardens or if a major incident (a water restriction, a grid instability event linked to data centre load) elevates the issue politically.

That said, NextDC is not passive on this front. The company was the first Australian data centre provider to achieve a 5-star NABERS Energy rating, and its S1 Sydney facility is the first and currently only TRUE-certified (zero waste) data centre in Australia. Its corporate operations have maintained 100% carbon neutral accreditation under the Climate Active scheme. These are not trivial credentials, and they position the company relatively well compared to incoming hyperscalers who have yet to establish local sustainability track records.

What Is Being Done in Australia?

The regulatory response is accelerating. The Australian government announced it will prioritise development proposals for data centres that meet five expectations, including sustainable water and energy use. The new framework expects new data centres to secure new and additional clean energy generation or storage to offset their demand, adopt industry-leading efficiency measures, and cover their share of transmission and distribution infrastructure costs.

Separately, the Australian Energy Market Commission has released draft technical standards requiring large data centres to remain connected during grid faults — addressing the risk that facilities simultaneously dropping off the grid could trigger cascading blackouts as their share of total load grows. From mid-2025, government workloads require a 5-star NABERS rating or a minimum PUE of 1.4, and water efficiency standards are expected to become mandatory for large AI-ready facilities by 2027.

What Happens Next?

The most likely trajectory is a tightening compliance environment rather than an outright halt to growth. Australia has genuine competitive advantages that cannot just be replicated. Amongst them: significant renewable energy potential, available land, a favourable geopolitical position, and robust data sovereignty frameworks. Oh and the global demand for AI compute is not going to slow. But…the era of data centres simply plugging into the grid and drawing water from municipal supply without contribution or constraint is closing.

The operators best placed to navigate this are those who treat resource sustainability as infrastructure strategy rather than public relations. The backlash is real, but it is also a signal that the industry’s social licence to operate is conditional, and that the conditions are becoming more explicit by the quarter.