A new government initiative incentivises data centre builders to comply with freshly set guidelines if they want to fast-track their developments.
Builders will have to meet environmental and efficiency standards, impose no net cost to consumers and fund additional supply of water and energy.
They will also have to enhance local community infrastructure, invest in "future industries" and commit to skills training and support jobs.
In return the state government promises to assess their applications within 75 days.
'We have to replace a lot of old energy sources'
With more than 60 data centres already operating or under construction in NSW and 19 more in the planning and approval pipeline, the government said it was time to set regulations.
Treasurer Daniel Mookhey said the government had been working on the framework for more than a year.
"We are launching a nation-leading policy to make sure that rising data centre investment is matched with increased investment in renewable energy and water infrastructure," he said.
Mr Mookhey said under the new framework data centre builders would foot the bill for new clean energy, sparing Australian taxpayers.
"There's no doubt we have to replace a lot of old energy sources like coal fire power. We do and should replace that with clean, green, renewable power," he said.
Minister for Climate Change, Environment and Energy Penny Sharpe said applications would be "held to the highest possible standards in our environmental protections system".
"We will have the most stringent environmental standards," she said.
"By 2030, data centres could take up 11 per cent of energy needs in NSW. That's a challenge but it's also an opportunity for us to underpin greater investment in renewable energy investment into the future."
The framework trades compliance for speedy government assessments, but it does not set out penalties for builders that refuse the government's offer.
Mr Mookhey said builders that did not meet the standards could have their proposals rejected.
"Those data centre builders that choose not to comply with these guidelines will have to take the risk that their projects are going to get refused," he said.
"We're pretty clear that these are our expectations … any data centre builder that chooses not to comply with these standards will find themselves almost alone."
Data centres face backlash
A group of students and community organisers protested the increase of data centres around Western Sydney on Sunday.
Gokulan Gopal is a local community organiser who spoke at the protest calling for a moratorium on new AI data centre builds until the community is consulted and has a better understanding of the impacts of living next to these data centres.
"Where is the water going to come from? Where is the power going to come from? How are we going to manage the waste? When the outage happens, what kind of backups are they going to use?" he said.
Sophie Shanaaz represents a campaign called 'Stop the Slop' which opposes the expansion of data centres in Western Sydney.
"We're really focused on getting all these AI data centres out of our suburbs … eating our resources. We're not happy about it and we want to do something about it," she said.
"I live in very close proximity to one being developed and I feel that there is not enough regulation at the moment."
Mr Mookhey said he was aware of community concerns and believed the new regulations would address them.
"This technology is only going to have social license if people can see that there is a strong dividend for them and their children, as well as our state and our nation's future," he said.
"The principle that we're setting for today is really straightforward. Data centres that want to build in New South Wales need to bring power, not take it."
Water usage addressed in guidelines
Under the new framework, data centre builders would need to show they were entering into power purchasing agreements with renewable energy providers.
"That means that if these data centre builders sign those contracts, it results in less bills for households," Mr Mookhey said.
Similar to energy consumption, data centres are also resource intensive when it comes to water usage.
Mr Mookhey said the guidelines addressed this by setting certain water usage efficiency standards and by incentivising data centre builders to invest in water infrastructure.
The framework will come with a water pricing review to be conducted by the Independent Pricing and Regulatory Tribunal (IPART), which would aim to "ensure water users on the network are protected and the impacts of drought and water scarcity are appropriately managed".
A new Office of AI will also be established to coordinate government investment in digital and AI assets to "ensure AI supports workers, strengthens capacity and is implemented responsibly across the public sector".
The new framework and Office of AI come into effect on Monday, while the IPART review might take longer.
