NSW data centre guidelines and network connection consultation paper

The New South Wales Government has released a significant new policy framework for data centre investment in the state. The framework sits within a rapidly evolving national artificial intelligence (AI) governance landscape. It follows the federal government’s recent announcement discussing a national planning and approvals framework for data centres and requiring large-scale data centres to underwrite new power supply. 

NSW’s data centre proposal

Below is summary of the NSW government’s key announcements.

NSW Data Centre Guidelines

The government has published formal Guidelines setting six principles that data centre developments must address. They covering environmental and efficiency standards, no net cost to consumers and communities, funding additional energy and water supply, enhancing local infrastructure and amenity, investing in future industries, and workforce training commitments. Projects that address the Guidelines will benefit from streamlined planning processes and a dedicated pre and post-consent concierge service.

Streamlined planning approvals

The government is committing to:

• a concierge function within the Department of Planning, Housing and Infrastructure; 
   
• provision of Secretary's Environmental Assessment Requirements within two months; and 
   
• a 75-day development application assessment process. 

Pre-assessment support for site selection and design will also be available.

Renewable generation

To satisfy the Guidelines, data centres must enter power purchase agreements for additional renewable generation (with a minimum 40% wind component and storage of at least 25% of generation capacity for four hours) with a duration of at least 10 years.

Electricity network reform – Consultation Paper

A separate Consultation Paper has been released, proposing 10 reforms to electricity network connection and cost recovery arrangements for data centres. To enable these reforms, the NSW government has introduced the Electricity Infrastructure Investment Amendment Bill 2026. Key proposals include:

• an entry bond of $30,000/MW for connection applicants to deter speculative applications;
   
• a Major Network Upgrade Fee of $200,000/MW in Sydney-Newcastle-Wollongong (and $100,000/MW elsewhere);
   
• requirements for data centres to guarantee payment for capacity made available, regardless of whether they use it;
   
• requirements for transmission-connected data centres to contribute to the costs of jurisdictional schemes like the Electricity Infrastructure Roadmap and Climate Change Fund in line with the beneficiary pays principle; and
   
• requirements for network service providers to include conditions in connection agreements requiring data centres to reduce grid demand by 25% for up to two hours during grid stress events.

Regulatory threshold

The proposed electricity network reforms are intended to apply to data centres with a rated connection capacity of 15 MW or greater, which will effectively capture any data centre development relying on the State Significant Development pathway.

Office of AI

Alongside the Guidelines and Consultation Paper, the NSW government will also establish the new Office of AI in The Cabinet Office to strengthen and accelerate the response to the opportunities and challenges presented by artificial intelligence.

Impact on data centre investors and operators

For data centre investors and operators, the framework offers welcome regulatory certainty and faster planning pathways in exchange for significant new compliance obligations around energy procurement, cost recovery contributions and demand flexibility. The $200,000/MW Major Network Upgrade Fee and $30,000/MW entry bond will add meaningful upfront costs, particularly for large-scale developments in Greater Sydney.

The Consultation Paper signals a clear intent to ensure data centres pay for the network infrastructure they require and do not impose costs on households and small businesses. The proposed access scheme (to be developed in 2027) could go further by using competitive processes to allocate scarce connection capacity.

Submissions on the Consultation Paper close at 5 pm Monday 14 September 2026. Given the pace at which these reforms are moving, affected stakeholders should be engaging now.

Broader regulatory context – federal and state governments

This announcement sits within a rapidly evolving national AI governance landscape. The Commonwealth established a new Office of AI within the Department of the Prime Minister and Cabinet in July 2026, tasked with coordinating the design of mandatory Australian AI Standards. 

At the state level, every Australian state and territory has now issued some form of AI governance framework or policy. South Australia was the first to establish a dedicated state-level Office for AI in July 2025. Victoria, Queensland and Western Australia have each released their own policy frameworks. The question of how these state-level settings interact with the new national framework is a live one and will be a key issue at National Cabinet.

Importantly, the NSW Data Centre Guidelines explicitly state they are ‘consistent with the Australian Government's Expectations of Data Centre and AI Infrastructure Developers’. The Consultation Paper also notes that state-based regulatory requirements may be sunsetted where national reforms mean they are no longer required.