Introduction

Australia's data centre sector is entering a new phase of growth. Driven by artificial intelligence workloads, cloud migration and rapidly expanding demand for digital infrastructure, data centres are no longer viewed solely as technology assets, but as critical infrastructure supporting Australia's digital economy.

The scale of development now proposed reflects that transition. More than 160 data centres are operating across Australia, accounting for approximately 2% of grid-supplied electricity, with that share projected to increase to around 6% by 2030. At the same time, approximately 5.4 GW of data centre capacity is progressing through the grid connection process, with the majority concentrated in New South Wales and Victoria.

Demand, however, is no longer the primary challenge. Capital remains available and long-term market fundamentals remain strong. Financing outcomes are now shaped by a project's ability to secure power, demonstrate durable revenue, manage delivery risk and navigate regulatory requirements. Those issues influence lender appetite as directly as traditional credit considerations.

This article examines the financing issues currently shaping Australian data centre developments and the legal considerations commonly arising during lender and investor diligence.

The financing challenge

Data centres are among the most capital-intensive forms of infrastructure development.

The proposed NEXTDC S7 campus at Eastern Creek has been associated with investment of up to A$7 billion and is expected to support up to 550MW of capacity at full build-out. Keppel’s proposed Latrobe Valley data centre campus, which has been reported as a potential A$10 billion development, could provide up to 720MW of gross power capacity if developed in full. Both projects require substantial capital deployment long before meaningful operational revenue is generated.

Power is becoming a credit issue

The race to develop data centre capacity has become a race to secure power.

Approximately 5.4 GW of data centre load is progressing through connection processes, while data centre electricity consumption is projected to increase from around 2% of grid-supplied electricity today to approximately 6% by 2030. Power is now treated as a financing issue rather than simply an operational consideration.

Lender diligence frequently focuses on:

• Connection pathways: connection agreements, energisation timelines and network augmentation obligations;
• Energy procurement: PPAs, retail supply arrangements and renewable energy strategies;
• Cost allocation: responsibility for connection costs, upgrades and electricity expenditure;
• Delivery risk: the extent to which project timing depends upon uncertain power outcomes; and
• Pricing assumptions: sensitivity of project economics to future energy costs.

For many projects, access to power has become one of the primary determinants of bankability. Where power pathways remain uncertain, financiers may require additional contingency support, staged drawdowns or increased sponsor commitments before funding is made available.

Revenue quality matters more than demand

Many data centre developments rely upon long-term arrangements with hyperscalers, cloud providers and enterprise customers capable of underpinning substantial capital investment.

Financing decisions are therefore driven primarily by the quality and durability of contracted revenue rather than the existence of customer demand alone. In practice, lenders are often more interested in customer contracts than market forecasts.

Lenders commonly focus on:

• customer credit quality;
• duration of commitments;
• termination rights;
• service level obligations;
• expansion and contraction rights; and
• revenue concentration.

Where a significant proportion of project revenue depends upon a limited number of counterparties, financing terms may reflect that concentration risk through covenant settings, pricing adjustments or sponsor support requirements.

As data centres continue to take on infrastructure-like characteristics, customer contracts are increasingly treated as financing assets rather than merely operational arrangements.

Technology risk and long-term relevance

Artificial intelligence workloads are influencing facility design, rack density, cooling requirements and power consumption across the sector. Proposed developments such as the Eastern Creek and Latrobe Valley data centres illustrate the scale at which these trends are now being contemplated, with projects now being designed around substantially larger power loads than traditional enterprise-focused facilities.

For lenders and investors, the relevant question is whether a facility can remain commercially and technically relevant throughout the financing horizon.

Lender attention is focused on cooling infrastructure, future expansion capability, retrofit requirements and the ability of facilities to accommodate evolving computing requirements. Those issues also have a legal dimension: they affect construction scope, performance regimes, defects risk, upgrade rights and the extent to which future capital expenditure is locked into project documents. Assets that require significant future capital expenditure to remain competitive may attract different financing assumptions than facilities designed with greater flexibility from the outset.

For developments involving speculative capacity, these considerations can influence lending assumptions, funding structures and sponsor support requirements.

Structuring and securing the financing

Once power, customer and construction workstreams have progressed, attention turns to financing structure.

Data centre financings now draw upon elements of corporate finance, project finance and broader infrastructure investment models. Capital is being deployed at both the platform and project level, reflecting the scale of funding required to support multi-campus development pipelines. The legal consequences of that choice can be significant, including for security coverage, structural subordination, cashflow controls, covenant design and the extent of sponsor support.

The choice of financing structure can have significant implications for leverage, security arrangements, covenant packages, sponsor support requirements and overall risk allocation.

Security and bankability of project contracts

A significant portion of lender diligence focuses on whether key project agreements are capable of supporting the proposed financing structure and the proposed security package.

As data centres continue to resemble traditional infrastructure assets, lenders are treating project documentation as part of the financing package itself. Particular attention is given to PPAs, connection agreements, EPC contracts, customer agreements and operations and maintenance arrangements, together with assignment restrictions, security and consent mechanics, termination provisions, change of control rights, lender step-in arrangements and intercreditor structures. Financiers will also test whether those contracts align with the proposed security structure, permit enforcement and preserve value on insolvency or restructuring.

For developers, bankability is often the key issue. Commercial positions that are acceptable between project participants may still require amendment before lenders are prepared to finance the project. Common pressure points include consent rights, assignment restrictions, liability caps, cure periods, interface risk and the treatment of delay and force majeure.  Addressing those issues early is generally more efficient than revisiting them once financing diligence is underway.

Managing financing risk

Construction and cost overrun risk

Construction risk remains a central feature of data centre financings, particularly for large AI-enabled facilities requiring substantial electrical infrastructure, cooling systems and long-lead equipment procurement.

Facilities measured in hundreds of megawatts require substantial capital deployment before revenue is generated, meaning delays and cost overruns can directly affect financing assumptions and repayment profiles.

Lender diligence frequently focuses on cost certainty, procurement strategy, completion risk, insurance arrangements and sponsor support mechanisms. Cost-to-complete analysis, contingency allowances, completion guarantees and contingent funding commitments commonly form part of this assessment. Legal diligence in this area commonly extends to EPC and supply contract terms, delay liquidated damages, testing and completion regimes, interface risk across multiple contractors, and whether approval conditions, utility dependencies, water availability or cooling-related requirements could delay completion.

The projects most likely to achieve financial close efficiently are those where construction, completion and delay risks have been clearly identified and allocated before lender diligence begins.

Recent market activity

Recent transactions provide some indication of how capital is being deployed across the sector.

These transactions differ significantly in structure and risk allocation. Even so, they point to a consistent financing theme: capital is more readily available where key development risks have already been materially progressed. In practical terms, that usually means clearer power pathways, more advanced customer contracting, better-developed delivery structures and a diligence package that allows lenders and investors to assess approval, contractual and execution risk with confidence.

Looking ahead

The Australian data centre financing market continues to mature as lenders and investors become increasingly familiar with sector-specific risks.

Over the next 12–24 months, attention is likely to focus on:

• power infrastructure and connection timing;
• customer contracting and revenue quality;
• project finance and hybrid funding models;
• foreign investment and national security considerations; and
• sustainability-linked financing structures.

Demand is unlikely to be the limiting factor. Financing outcomes will be determined by execution: securing power, converting demand into durable revenue, delivering projects on time and navigating an increasingly complex regulatory environment.

Financing remains available, but it is increasingly selective. For developers, the practical takeaway is clear: projects are more likely to attract competitive funding where power strategy, water strategy, approvals, regulatory compliance, customer contracts, delivery documents and security pathways have been addressed early and documented in a lender-ready form. A lender-ready project increasingly requires an integrated strategy for power, water, approvals and regulatory compliance, rather than separate workstreams considered in isolation. As data centres continue to mature as an infrastructure asset class, execution risk is likely to become a more important determinant of financing outcomes.

For more information, please contact one of our team:

Jae Lemin | Partner

Nicholas Creed | Partner

Chuong Nguyen | Partner

Tricia Moloney | Partner