Electricity availability constraining data centre boom
Australia’s nascent data center boom risks being disrupted by unreliable energy supplies, limiting the country’s productivity potential.
Deloitte Access Economics’ quarterly investment tracking report found that IT firms’ spending on machinery and equipment has reached record levels at a time when Australia is trying to cash in on the artificial intelligence boom.
The report said it was too early to tell whether artificial intelligence would consistently increase Australia’s growth potential and the productivity needed to raise living standards.
However, investment in technology infrastructure will enable more data-intensive business models, greater automation and innovation in other sectors.
But Sheraan Underwood, director and lead author of Deloitte Access Economics, said developers face increasing restrictions, especially on access to reliable electricity.
“The vast majority of these projects remain in the planning stage, meaning the pipeline has yet to translate into a sustainable increase in construction activity,” he said.
“Progress will depend on continued growth in the use of AI as well as access to a stable and affordable electricity supply.
“Yet data centers now represent one of the fastest growing segments of the national project pipeline and a potentially significant source of investment for the future.”
Despite the challenges of the energy transition, Australia’s strategic location in the Asia-Pacific and relatively stable regulatory frameworks have made it the second largest destination for data center investment after the United States.
An additional $28 billion worth of data center projects were added to Deloitte Access Economics’ database last year, leading to a 57 percent increase in the value of projects in the finance, real estate and business services sector.
These include the $5 billion Mamre Road data center (a sprawling campus of six four-storey buildings capable of delivering up to 1GB of data power) and the $3.1 billion Marsden Park data center, both in western Sydney.
A sharp increase in data center investment contributed to private demand exceeding Federal Reserve forecasts in the second half of 2025, which the central bank cited as a key factor behind its decision to raise interest rates on Tuesday.
The surprising pace of private sector recovery was also supported by strong household spending.
A one per cent increase in household spending in November pushed annual growth in the measure to 6.3 per cent, the highest in two years, the Australian Bureau of Statistics reported.
But consumer confidence has taken a hit due to expectations of higher borrowing costs.
Economists expect a slowdown in growth when the statistics bureau releases December spending figures on Monday.
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