Australia's national cabinet reached agreement on August 26 on nationwide standards for AI data centres, but only after Prime Minister Anthony Albanese dropped demands that all new facilities be powered entirely by renewable energy3,6. The compromise includes carveouts for Queensland and the Northern Territory, whose governments had refused to sign on to rules excluding coal and gas4.
The shift followed weeks of escalating tension. Energy Minister Chris Bowen had said the federal government would use constitutional powers to override states resisting the renewables requirement. Queensland Premier David Crisafulli and Northern Territory Chief Minister Lia Finocchiaro stood firm, with Crisafulli arguing Queensland should be allowed to use energy from its publicly owned networks and Finocchiaro citing the Beetaloo Basin gas project1,5. Finocchiaro said at the meeting she had won approval to use gas from the Beetaloo Basin.
Under the agreed framework, states and territories committed to nationally consistent minimum obligations for data centres covering energy, water, and land use8. Developers will be required to avoid pushing up power prices, meet their own connection and water infrastructure costs, minimise water use, and locate facilities away from homes, schools, and agricultural land. However, the final national agreement did not mention renewable energy directly.
"We want to make sure that in attracting investment, we don't have eight different systems operating around the country," Albanese said. He described the outcome as reflecting a "flexible approach" for governments with state-owned power systems.
The stakes behind the negotiation are substantial. The Australian Energy Market Operator (AEMO) forecast that data centre power consumption will grow from 5 to 34 terawatt hours by 2035-36, rising from 3% of overall electricity consumption to 13%9. Under a high-growth scenario, AEMO estimated consumption could reach 52 TWh, a ten-fold increase over the decade. A year ago, AEMO had forecast data centres would not reach the 34 TWh level until some time after 2050.
The number of data centre projects in development has more than doubled from 97 to 225, though more than a third of projects listed in 2025 have since been cancelled. There are 165 data centres already operating across the national electricity market. The federal government estimates investment plans announced over the past three years could scale up to more than $100 billion for the Australian economy.
AEMO Chief Executive Daniel Westerman said record levels of new generation and storage coming online had improved the reliability outlook, but warned that grid reliability depended on new supply being delivered on time to cover retiring coal facilities. Climate Council Chief Executive Amanda McKenzie said data centres were "set to devour an enormous share of Australia's electricity in the coming years"12.
Experts flagged a potential loophole: projects that secure approvals before the legislation passes will only be subject to existing state or territory laws, raising the prospect of a rush of pre-regulation construction10. Gregor Verbic, an energy expert at the University of Sydney, warned that the national grid faces the imminent closure of multiple coal-fired power stations and that "we are not building new capacity fast enough".
Albanese flagged draft legislation to be introduced by the end of 2026, aimed at passage in early 2027. The broader legislation is expected to go beyond energy rules, setting copyright protections for Australian creatives against AI model training, along with standards for security, safety, and skills development13. Albanese has said it would be "theft" if writers, artists, and musicians did not have control of their work or receive payment for its use in training large AI models.
ANALYSIS The retreat from a blanket renewables mandate in favor of state-by-state flexibility weakens the federal government's original framework, which had positioned Australia as requiring data centres to bring new clean energy onto the grid. The grandfathering of already-approved projects creates a narrow window that could accelerate near-term construction ahead of the 2027 legislative deadline.