NSW Data Centre Inquiry - the Hidden Connection between Water, Energy and Diesel
Australia's digital infrastructure is booming, but at what cost? The NSW Public Accountability and Works Committee has launched Australia's first parliamentary inquiry into data centres. Whilst most coverage focuses on electricity consumption; there's a critical connection that even experienced operators may be overlooking.
Meanwhile, whilst NSW scrutinises impacts through formal inquiry, Victoria takes the opposite approach. Minister Danny Pearson announced a 'light-touch regulation' strategy’, promising minimal red tape to attract hyperscale facilities. This state competition makes understanding the inquiry's focus even more critical.
The Data Centre Boom: By the Numbers
NSW's data centre expansion is remarkable. With over 90 operational facilities and dozens more planned, the environmental implications are significant:
According to recent projections, grid power demand will surge 28% over ten years, with data centres consuming 11% of NSW's electricity by 2030.
Water consumption is projected to reach 25% of Sydney's supply by 2035, equalling 250 megalitres daily.
Nationally, Climate Council figures show Australia's data centres consuming 2% of national grid power, projected to reach 6% by 2030.
The Water/Diesel Connection Often Missed
Here's what the headlines don't tell you: the water consumption crisis and the diesel backup requirement are intimately connected, and both are driven by the same cooling infrastructure.
According to US Department of Energy research, approximately 50% of a data centre's total power consumption goes to cooling infrastructure not IT equipment. This cooling load directly drives both water consumption (through evaporative cooling towers) AND the size of diesel backup systems required.
With Sydney's data centres projected to consume quarter of the city's water supply by 2035, most of that water will evaporate through cooling towers. But here's the critical insight: those same cooling systems must be powered by backup diesel generators during grid failures, and the generators must be sized to handle the cooling load, not just the IT load.
The Hidden Diesel Dependency - Regular Generator Testing Multiplies the Problem
Data centres require 99.99% uptime, even brief power interruptions cause catastrophic failures. Most discussions about data centre diesel focus on emergency backup. But industry standards require regular testing of backup systems - weekly or monthly load tests, quarterly extended runs, annual full-capacity exercises. For a hyperscale facility with inefficient cooling (high PUE), this means testing potentially hundreds of megawatts of diesel generation capacity year-round.
With data centre consumption growing from 2% to 6% of grid power by 2030 and NSW's projected 28% grid demand surge, the diesel testing requirements scale proportionally. Every percentage point of market share represents thousands of additional litres of diesel consumed annually in backup systems.
What the Inquiry is Examining - and it calls out Diesel Use
We already know data centres underpin critical infrastructure: AI, cloud computing, healthcare, financial services - all of which create substantial economic opportunity. The NSW Government's position is clear: data centres must pay for extra burden on utility networks so households don't foot the bill.
The Inquiry will examine:
Infrastructure and utility impacts: Electricity demand/transmission planning/distribution investment and water demand/distribution and risks to water security.
Environmental impacts: Whether uncontrolled growth could jeopardise NSW's legislated 2035 emissions targets noting in particular: “the role of on-site backup generation, including diesel and gas, and associated emissions and health impacts”.
Social impacts: How data centre expansion affects communities, particularly regarding infrastructure strain.
Economic impacts: Whether adequate safeguards exist to protect the public from bearing costs of infrastructure upgrades.
Planning pathways: Scrutiny of the fast-track approval process for hyperscale developments and State Significant Development classifications and triggers.
Submissions close on 27 March 2026 with a committee report by 30 September 2026.
The Renewable Diesel Solution Addresses Both Challenges
Here's where the inquiry's scrutiny creates opportunity. Whilst you cannot immediately change your cooling infrastructure, you can immediately address the emissions and worker health impacts from your essential diesel backup systems.
Renewable diesel works as a drop-in replacement for conventional diesel in backup generators. This means:
Up to 90% emissions reduction from all diesel consumption - emergency operation, weekly testing, monthly load tests, annual exercises.
No infrastructure changes - works in existing generators without modifications, maintaining your 99.99% uptime guarantee.
Immediate compliance - with increasing regulatory scrutiny whilst cooling efficiency improvements take years to implement.
Scalable solution - addressing emissions regardless of cooling efficiency.
Improved workplace health - significant reduction in diesel particulate matter, lower carbon monoxide, lower NOx and aromatics and near zero sulphur content.
The Path Forward
The NSW inquiry represents a watershed moment for Australian energy policy, demonstrating that unlimited expansion without environmental accountability is ending. For businesses, particularly energy-intensive sectors, the message is clear: sustainable operations are no longer optional.
Renewable diesel offers a bridge solution - allowing significant emissions reduction today, using existing equipment. Whether you operate in NSW facing scrutiny or Victoria pursuing growth, renewable diesel provides environmental credentials that work under any regulatory framework because it addresses the fundamental diesel consumption that no amount of regulation can eliminate.