The power behind the long white cloud

New Zealand is rapidly emerging as a cornerstone of Asia-Pacific’s digital infrastructure, fuelled by billions of dollars in investment from global technology leaders. The rise of data centres is transforming the nation’s economy, technological capabilities, and environmental landscape. No longer just digital storage facilities, data centres are critical digital infrastructure powering advancements across sectors such as finance, healthcare, media, and government. Driven by artificial intelligence (AI), cloud computing, and digital transformation, New Zealand is emerging as an important player in the Asia-Pacific region’s data economy.

With major new facilities coming online in 2025, this momentum presents both opportunities and challenges. While New Zealand’s strengths make it an attractive destination for data centre investment, the industry must address issues such as energy demands, connectivity limitations, regulatory frameworks, and workforce readiness.

The market: scale and potential

The scale of New Zealand’s data centre market is evident in its rapidly expanding investment pipeline and rising energy demands. Over NZD20 billion in developments have been announced by both global and local providers, underscoring the sector’s growing importance.

While additional scrutiny is applied to certain overseas investments into the data centre sector, the New Zealand Overseas Investment Act generally facilitates overseas investment into the sector. For data centre investments in rural settings, the significant capital investment and broader benefits to the local economy that can be realised through the establishment of a data centre generally assist in meeting the applicable criteria under the Overseas Investment Act. These settings go some way to encourage further overseas capital into the sector.

While Auckland remains the epicentre of investment, the South Island offers untapped potential. The cool climate, abundant renewable energy, and available land, make it a prime candidate for future developments, particularly as connectivity infrastructure continues to improve.

Approximately 85% of the country’s electricity comes from renewable sources such as wind, hydro, and geothermal energy, providing a compelling ESG (Environmental, Social, and Governance) advantage. This aligns with global sustainability priorities and makes the country attractive to operators committed to reducing their environmental footprint.

Renewable energy: a double-edged sword

On the one hand, the country's abundant renewable energy resources enhance its appeal to sustainability-focused operators. On the other, the cost and reliability of energy supply – often affected by weather variability – pose significant hurdles. Furthermore, the growing energy demands of the sector risk straining the national grid.

Projections suggest that by 2030 data centres in New Zealand could consume as much electricity as the Tiwai Point aluminium smelter. This raises pressing concerns about the resilience and sustainability of the energy supply.

Questions also remain about how renewable electricity agreements and offsets will be taken into account for the real estate sector in international net zero target regimes, such as the Science Based Targets Initiative.

Collaboration between operators and energy providers is key, particularly in developing advanced energy storage systems to manage supply fluctuations and investing in renewable sources like hydro, wind, and solar power. For instance, a major technology company recently announced that its first New Zealand data centre will have its entire electricity use matched with renewable electricity sources.

Operators are turning to innovative solutions such as AI-driven energy management systems to optimise power usage. For example, Datacom not only incorporates AI into its services but also employs it to reduce the environmental footprint of its operations.

Advanced cooling systems and energy-efficient technologies can significantly reduce the carbon footprint of data centres. Cool climates, in particular, offer natural advantages for minimising cooling costs, and observations in overseas markets such as Australia, Norway, Denmark, and Canada, highlight several emerging innovations that can mitigate the impacts.

Improving latency and connectivity

New Zealand’s remote location presents challenges in ensuring seamless global connectivity. However, new subsea cables connecting the country to major international markets are set to significantly reduce latency and position the South Island as an emerging hub for sustainable data centres.

New Zealand's international data connectivity has evolved through several key submarine cable projects:

• Southern Cross Cable Network: In operation since 2000, it connects New Zealand to Australia, Fiji, Hawaii, and the US West Coast, serving as a critical component of the nation's internet infrastructure.
• Hawaiki Cable: Launched in 2018, this cable connects New Zealand to Australia, the Pacific, and the US, further strengthening the country's global data links.
• Tasman Global Access (TGA) Cable: Operational since 2017, the TGA is a 2,288 km fibre-optic submarine cable linking Raglan, New Zealand, to Sydney, Australia, with a total design capacity of 20 terabits per second, enhancing New Zealand's international bandwidth.

Announced on 4 December 2024, telecommunications provider Chorus and digital infrastructure company Datagrid are exploring the development of a 6,000 km trans-Tasman subsea cable, the Tasman Ring Network. The companies have signed an exclusive Memorandum of Understanding to develop the network, which would link Auckland, New Plymouth, Greymouth, Invercargill, Sydney, and Melbourne via high-capacity international transport links. With an anticipated capacity of up to 540 terabits per second, it would be the first dedicated high-fibre-count submarine cable connecting New Zealand and Australia.

Balancing innovation with data sovereignty and privacy laws

New Zealand’s legal framework on data privacy, including robust oversight of law enforcement and intelligence agencies' ability to access data, makes it an attractive destination for data centres. New Zealand benefits from an adequacy decision under GDPR (considered one of the world's most stringent data privacy frameworks), enabling local and global businesses to meet the high bar now expected of them as data custodians.

The rapid proliferation of data centres has intensified discussions around data sovereignty. Concerns about foreign ownership and jurisdictional risks have prompted calls for locally controlled data. Māori organisations and other stakeholders are advocating for greater control over their data, ensuring alignment with cultural values and national interests.

Government agencies are increasingly relying on local data centres to meet data residency requirements under public sector policies. For instance, the Government's Protective Security Requirements mandate that data classified at certain levels must not be exposed to foreign systems. These requirements are often flowed through to private sector organisations contracting with the Crown.

Future legal developments in this area may introduce new compliance requirements for data centre operators.

Economic impact and workforce development

The economic benefits of data centre expansion are transformative. New developments promise billions in economic contributions, generating jobs across construction, IT, and engineering. However, a critical challenge looms: the industry faces a significant skills shortage. Data centre operators are competing for talent in a tight labour market, potentially limiting growth.

To bridge this gap, partnerships between industry and educational institutions are emerging, aimed at cultivating a skilled workforce ready to meet the demands of modern data centres.

The 'AI hunger' for data centres around the globe

The global data centre market is expected to be valued at around USD300 billion in 2024. With a projected average compound annual growth rate (CAGR) of approximately 10% over the next five years, the market is expected to be valued at USD483.15 billion by 2029.

In Q3 2024, TMT Finance, on behalf of DLA Piper, surveyed 176 senior executives on the topic of data centre investment opportunities and related emerging trends, such as access to power and the impact of AI. The Report, Navigating Global Growth in Data Centres – Riding the AI Wave, published this month, includes insights from respondents that represent a global mix of the data centre investment ecosystem: industry executives, investors, financiers and advisers.

Those surveyed expressed significant concern over the stability of power supplies for the rapidly-growing number of data centre sites worldwide. A total of 98% of investors and operators said that they had concerns about the availability and reliability of power supplies when they made decisions about data centre projects, with half of respondents identifying the issue as a principal barrier to investment.

The report highlights that utility companies in the US are being flooded with power delivery requests for sites earmarked for data centres that they will not be able to satisfy until well into the 2030s. In response, utility companies are now requiring large upfront non-refundable payments from investors in land and a committed off-taker of that power. The report also reveals utility companies are requiring developers to pay upfront for all the critical infrastructure, such as substations, needed to bring power to the site.

Investors are also expecting sustainability concerns around data centre energy and water usage to continue growing, with 70% of respondents saying they expected scrutiny and due diligence to increase over the next two years. The EU has already introduced a range of measures which place significant obligations on data centre operators to report and take measures to reduce their emissions.

New Zealand’s unique combination of renewable energy leadership, geopolitical stability, and advanced digital infrastructure places it desirably within the global data economy. But, for the country to maintain its competitive edge, strengthening public sector support, aligning data centre expansion with ESG principles, and addressing workforce and infrastructure challenges will be essential.

AI applications, such as machine learning, natural language processing and computer vision, require substantial computational power and data storage, which in turn drives the need for more data centres. Half of respondents (50%) believe machine learning will be the largest demand driver, followed by natural language processing (34%).

If you would like to discuss the Navigating Global Growth in Data Centres - Riding the AI Wave report or the data centre market in more detail, please get in touch.

If you would like to discuss the Navigating Global Growth in Data Centres - Riding the AI Wave report or the data centre market in more detail, please get in touch.