The NSW Government has released its long-flagged Data Centre Guidelines and Policy Framework[1], alongside a Bill already before Parliament.
At the centre of the NSW Data Centre Guidelines are six principles that set the Government’s expectations for data centre development in NSW. They span environmental and resource efficiency, the cost of supporting infrastructure with investment in renewable energy, additional energy and water supply, community benefits, and workforce development.
The principles are not simply aspirational: proponents seeking the benefit of the Government’s faster and more streamlined planning pathway will need to demonstrate how their projects meet them.
But Principle 2 warrants particular attention. The rapid growth of data centres has intensified concern about who ultimately pays for the significant generation and network infrastructure required to support their electricity demand. There has been increasing scrutiny of the risk that the costs of network augmentation and additional capacity required by large data centre loads could ultimately be borne, at least in part, by the broader customer base through higher electricity bills.
The Government acknowledges that regulatory change is required in both the energy and water sectors to and, while those reforms are progressed, the Guidelines establish interim measures intended to shift the cost and stranded-asset risk of infrastructure required for data centres away from the broader customer base and onto proponents.
For renewable energy proponents, network operators, financiers and investors, this reform touches familiar territory, but with a few changes.
The shift in plain terms and where this is heading
Historically, when a large new connection forced the network to expand, this cost was often spread across everyone’s power bills. That is about to change for data centres. The Electricity Infrastructure Investment Amendment Bill 2026[2], introduced 5 August 2026, allows the Minister to declare a “large load infrastructure access scheme” for a site or region. It also directs AEMO Services Limited, as consumer trustee, to set the fees data centres pay on a strict cost-recovery basis, with no regard to maximising value for ordinary electricity customers.
What proponents can act on now – the Guidelines interim playbook
While the Bill and any Pillar 2 regulatory reforms remain pending, the Guidelines provide a useful basis for interim proponent arrangements. They set out, in very specific and largely prescriptive terms, what data centres should be agreeing with utilities via commercial contracts whilst legislation catches up. Specifically, proponents are expected to:
- enter into commercial arrangements with energy utilities for prepayments, take-or-pay structures, upfront capital contributions, or financial guarantees that protect the broader customer base from stranded-asset risk if a project fails to proceed;
- secure equivalent arrangements with water utilities pending the separate IPART Pillar 3 review. Unlike Pillar 2, there’s no bill and no scheme design yet. Given how tightly water and drought resilience feature in public debate, we expect this to move quickly once IPART reports. In the meantime, the Guidelines explicitly mention that where recycled water is not yet available, proponents are expected to negotiate an offset plan for their interim use of potable supply. Water is the other side of that same social licence coin;
- demonstrate an ability to reduce grid-supplied electricity demand by 25% of forecast average load for up to two hours, principally through load shifting on site or proximate renewable generation and storage;
- agree with the relevant electricity utility on the notice period for any required demand reduction, noting that AEMO may also direct a reduction in accordance with that notice period; and
- enter into power purchase and firming agreements with a minimum 40% wind generation component, storage equal to at least 25% of generation capacity for a four-hour duration, and a minimum ten-year term. Importantly, diesel back up generation cannot be used to satisfy the demand-reduction requirement, and the agreements must be for energy projects that have not yet reached final investment decision at the time of contracting.
At this stage, none of this is legally binding. However, it is commercially mandatory in practice, as compliance unlocks Pillar 1’s fast-tracked assessment pathway (a 75-day cap on assessment time, proportionate SEARs, and a dedicated DPHI concierge function).
A mechanism worth recognising
For renewable energy proponents, this new Bill should draw on some familiarity. The Bill amends the same provisions (ss 24-29 of the Act) NSW has used since 2020 for REZ access schemes, simply adding “large load infrastructure area” as a third category. The fee-setting section is amended the same way: existing REZ principles apply, with new ones layered on for large loads, requiring proponents to bear their own network cost, sparing other customers from that cost, and keeping supply reliable, secure, affordable and sustainable along with an express instruction that fees must not be set to maximise consumer value.
How we can help
As this is a fast-moving reform process, we can help by:
- securing suitable real property and assessing landholding options for developers and operators;
- assessing exposure under a future large load access scheme, including fee-setting risk once regulations are made;
- negotiating and reviewing Power Purchase Agreements for renewable projects and cost-recovery agreements against the Guidelines now, before lodging a planning application; and
- stress-testing applications against the Guidelines.