Sydney has curbed data centres to save power and water. Can New Zealand plan more wisely?

Data centres may look innocuous from the outside, but inside they house the hardware that keeps the digital economy running – the backbone of banking, cloud services and the AI tools now reshaping business.

As demand accelerates, New Zealand is on the cusp of a data centre boom that could reshape its economy and test whether regulation and infrastructure can keep up. 

“Data is quickly becoming, if not already, a critical utility. We have come to rely on data just as much as our roads, our power and our water,” says Oliver Hobbs, a partner at Dentons who advises on infrastructure projects. “So much of daily life relies on it. Without data centres, businesses would grind to a halt, banking systems would stop, and many essential services would collapse.”

Why demand is growing

New Zealand’s data centre market has lagged behind neighbours like Australia, but that gap is expected to close fast.

Hobbs says the surge is being driven by both domestic and global forces. Locally, businesses are adopting more digital tools and AI. Internationally, investors see New Zealand as a strategic location with a cool climate, renewable energy, and political stability.

“There’s also scope for us to pull some of our data back home,” Hobbs explains. “Many transactions currently route through Australian servers. Building capacity here means we can house that data in New Zealand.”

Projects such as Data Grid’s proposed Invercargill facility, backed by a new submarine cable to Melbourne and Sydney, illustrate the scale of change ahead. “It will be the biggest in the country by far,” Hobbs says. “These projects plug New Zealand into the wider world.”

Beyond land and buildings

While headlines often focus on property development, locating a data centre is far more complex than simply buying land.

“Developers are extremely picky. They’re looking for a Goldilocks zone that is close to a transmission line for high-voltage power, safe from flooding or earthquakes, away from airports, and ideally in a low-profile industrial park for security reasons,” Hobbs says. “They’ll walk away from sites if they can’t tolerate the risks.”

Once a site is identified, the challenges multiply: securing power agreements equivalent to supplying as many as hundreds of thousands of homes, arranging fibre connections, and negotiating customer commitments. “By the time a developer buys the land, they may have already spent a year and hundreds of thousands on feasibility,” Hobbs says.

International standards such as TIA-942C set minimum requirements for where a data centre can be located, while New Zealand’s Public Cloud Data Centre Certification (PCDCC) dictates what types of data a facility can host – making compliance as important as construction.

Opportunities and risks

The benefits of building a data centre market on par with global peers are significant. These projects create jobs, boost digital capability, and strengthen the economy. But the risks are just as real.

“Data centres suck up a lot of power and water,” Hobbs warns. “In Sydney, projections show up to 25% of the city’s water could go to cooling data centres by 2035. That’s the kind of challenge we need to think about now.”

Sydney has imposed limits on new data centres to protect its power grid. For Hobbs, the lesson is clear: governments will intervene if planning doesn’t keep pace. For New Zealand, cooler temperatures and high renewable energy outputs provide an edge. “It’s a genuine efficiency and sustainability advantage. Operators here have access to an energy grid that’s already more than 80% renewable.”

The role of government and regulation

One concern is the lack of specific regulatory focus on data centres in New Zealand. “We’re not as advanced as Australia in terms of protecting critical infrastructure,” Hobbs says. “There’s no clear consenting pathway under our resource management system, and no clear strategy for balancing power and water demand with growth. That’s something the government will need to address.”

At the same time, Hobbs points out that the industry is highly self-regulating. “These are sophisticated players housing data for banks and governments. They have a strong commercial motive to ensure resilience and security.”

Dentons’ perspective

For Dentons, the world’s largest global law firm, advising on data centre projects means more than just ticking legal boxes. “It’s a commercial exercise that ties together land, power, fibre, and customer agreements in a way that’s quite different to an ordinary project,” Hobbs explains.

Dentons’ local team draws on both New Zealand experience and global expertise. “We’ve seen models overseas, like co-locating renewable energy projects with data centres in Australia, and we know that’s something that could work here,” Hobbs says. “Early partnerships with renewable energy generators are going to be critical.”

Looking ahead

The future of data centres in New Zealand depends not just on demand, but on how well the country navigates these pressures.

“If we get it right, data centres can underpin a more robust digital services economy and make New Zealand a global player,” Hobbs says. “But it will take the right processes, the right regulation, and a focus on sustainable growth to unlock that opportunity.”

This article was originally posted to BusinessDesk NZ. You can find the link to the original article here.