Sydney Faces a Water Test in the Data Age

Data hubs may take 25% of city’s supply by 2035, raising pressure for recycling and pricing reforms

2 Oct 2025

Sydney’s ambition to become a hub for artificial intelligence and cloud computing is running into an unexpected constraint: water. By 2035, data centers could consume as much as a quarter of the city’s annual drinking water, according to projections cited by Sydney Water. Today, their usage is less than 1 percent, but rapid construction is set to transform the scale of demand.

Cooling remains the core challenge. Many facilities still rely heavily on potable supplies, though operators are increasingly exploring non-drinking alternatives such as recycled water and advanced cooling systems. Microsoft and Amazon highlight gains in efficiency and new projects using non-potable sources, while AirTrunk has promoted plans to expand recycled water reliance. These efforts mark a shift toward sustainability, but observers caution that voluntary measures may not be enough without clearer planning requirements.

Sydney Water is also rethinking its approach. Officials have flagged tailored service models that would encourage recycled water uptake and adjust pricing to reflect the industry’s scale. The goal, they note, is to ensure households are not left with higher costs as regulatory changes drive up residential water prices.

Analysts compare the challenge to earlier strains on the energy sector, where large industrial users pushed utilities to innovate. If data centers adopt advanced recycling and efficient cooling at scale, they could actually accelerate investment in water-smart infrastructure that benefits the broader city.

The stakes are significant. Without stronger oversight, Sydney risks higher household bills and greater vulnerability to climate-driven water stress. Yet there is also opportunity: data center operators that move early on sustainability can secure faster approvals, earn community trust, and set benchmarks for responsible growth.

Sydney’s digital transformation is no longer just about servers and fiber. Its future may hinge on whether the water demands of the data economy