A data centre being described by the company behind it as an “AI factory” is set to become NZ’s second-biggest electricity user.
Resource consent was approved for Datagrid’s Data Park in Southland, as well as for an undersea fibre optic cable linking the South Island to Australia.
Datagrid says access to the country’s biggest hydroelectric stations, low temperatures, and “plentiful water” will mean the data centre has “green power” and low cooling requirements.
The SMC asked experts to comment.
Angus Dowell, PhD candidate in Economic Geography, University of Auckland, comments:
“One key question to ask of this project is whether its “AI factory” will operate as part of the rapidly expanding global infrastructure used to train and run artificial intelligence systems, for example as a co-located facility or contracted compute site for larger overseas technology firms.
“If so, it should not be understood simply as a local investment tied to regional development. There is a longer history of supposedly local data-centre developments functioning as nodes within much larger international cloud and platform networks operated by major technology companies. My research on the expansion of big-tech cloud infrastructure suggests facilities like these are often integrated into transnational computing systems whose main markets, customers and commercial returns lie elsewhere.
“The key issue is therefore not just whether the project brings investment, but how the benefits of that investment are structured and distributed. Infrastructure like this can be physically located in a region while being economically and operationally integrated into wider global cloud and AI systems. Under those conditions, local communities may provide the land, energy and enabling infrastructure, while much of the strategic control and commercial value remains concentrated elsewhere.
“These kinds of tensions increasingly sit at the centre of international debates over data sovereignty and digital infrastructure.
“What’s more, data-centre projects are often promoted in terms of jobs and economic growth, but the long-term workforce is typically small once construction is complete, while the demand they place on local electricity systems can be substantial.”
Conflict of interest statement: “No conflicts of interest.”
Dr Ulrich Speidel, Senior Lecturer in Computer Science, University of Auckland, comments:
“Data centres in Southland have been on the cards for a long time, so this is by no means a surprise development.
“The driving factor here is availability of cheap abundant electrical power from hydro. Data centres are always power hungry, especially where AI is involved.
“AI at scale requires the use of GPUs – graphical processor units, a type of processor once developed for computer graphics but now often used for AI. In both areas, it’s important to be able to carry out a large number of calculations in parallel, and this is what GPUs are good at.
“GPUs have two types of output: data – which is what we want – and heat, which is generated when the billions of logic gates in them do their switching, and which we generally don’t want because it can damage the GPU chips if we don’t get rid of it. That requires air conditioning and/or water cooling, so again having access to power for the aircon and cold water is a bonus.
“Also we want to get the data in and out, so network connectivity is an issue. So far Southland connects to the world via NZ’s international cables, all of which run from Auckland, Muriwai, Raglan and Mangawhai, and it’s a long and somewhat precarious way from there to Southland. The long anticipated Tasman Ring Cable to Melbourne and Sydney will alleviate that somewhat. But this also tells us that the main market for the new Data Centre is likely to be Australia.
“Possible intended and unintended consequences: The other big power user down there is the Tiwai Point smelter. Between them, there mightn’t be so much power available to send north anymore. Likewise, any threats to close the smelter might have a little less bite from now on.
“That said, international experience shows that data centres aren’t always good for local communities, driving power and land prices up, while creating not all that many jobs. There’s a few jobs during construction but generally very few thereafter because most of the operation is automated and remote controlled from places with a larger pool of IT staff. So the local communities need to think a bit about whether the extra connectivity that comes with the cable is enough payback for them or whether other ways of monetising the data centre’s presence are needed, too, such as special rates etc.
“Will all the power use contribute to global warming? Directly no, because hydro uses potential energy from water in rivers that would have turned into heat anyway along their way to the ocean. Indirectly, perhaps, if the hydro power used by the data centre displaces power that would have headed north and then needs to be generated elsewhere using fossil fuels.”
Conflict of interest statement: “No conflicts of interest.”
Professor Albert Bifet, Director of Te Ipu o te Mahara – AI Institute, University of Waikato, comments:
“The approval of New Zealand’s first “AI factory” in Southland is an important step for the country’s digital infrastructure. AI systems require very large computing power, and facilities like this provide the data centres and connectivity needed to train and run modern AI models.
“We are seeing similar initiatives in other parts of the world. For example, Europe is investing in networks of “AI factories” connected to high-performance computing centres to support research and industry innovation. If New Zealand wants to stay competitive in AI, we will need more infrastructure like this.
“The opportunity will be to ensure this capacity benefits the local ecosystem, including universities, startups, and businesses, so that AI innovation can grow within New Zealand.”
Conflict of interest statement: “No conflict.”
Dr Daniel Collins, Independent hydrologist, Pūtahi Research, comments:
“Data centres are water intensive. They can use a large amount of water for cooling and, if electricity is obtained from hydropower, in indirect electricity generation. They can also dispose of large amounts of wastewater into the environment, which may be heated above ambient temperatures if not ameliorated.
“Southland is relatively water-rich, has lower water resource demand, and has significant electricity generation at the local Manapōuri Power Station. In terms of water resources, this places Southland among the better locations for a data centre in Aotearoa.
“The data centre would use groundwater and on-site stormwater for its cooling. Current allocation of local groundwater is low, with capacity for more water use. It is not apparent to me how much water would be abstracted and discharged.
“Given the significant energy demand of the centre, it may be prudent to consider electricity use within the bigger pictures of Aotearoa’s electricity generation dry-winter problem, as well as our need to decarbonise and electrify the national economy.”
Conflict of interest statement: “No conflicts of interest.”
Dr Helen Rutter, Senior Hydrogeologist, Lincoln Agritech, comments:
“I don’t know enough about the application to comment in any detail (and haven’t been able to find any more detailed information), but data centres will require a large quantity of water for cooling. It will apparently be sourced from groundwater, but I’ve not been able to find out anything more than that. There is also mention of possibly “coolant laden” wastewater in an original fast track application document, but again I have no information as to treatment or discharge.
“When taking groundwater, we usually assess any effects on other users (that is, other people who have wells that abstract water) and on the environment (taking groundwater can dry up any connected rivers/streams and wetlands – e.g. the Taylor Road Wetland). We usually assess the effects of peak flow rates over shorter time periods as well as lower rates over longer time periods.
“Any application to build something like this would also need an assessment of possible discharges to the environment. These would be construction-phase discharges (e.g. sediment that may enter waterways and stormwater) and operational discharges, such as stormwater and wastewater. In this case, it is not just domestic wastewater that will need to be dealt with, but also the potentially coolant laden wastewater from the operation of the datacentre.
“I haven’t been able to find the Environment Southland resource consent which might contain some of the above details.”
“The city council consent to construct the datacentre does contain a lot of proposed plans (e.g. Erosion and Sediment Control Plan, Wetland Management Plan, etc) and I would hope these proposed plans will be effective in mitigating the effects on the environment.”
Electrical Engineering expert Professor (Ahorangi) Nirmal Nair, Waipapa Taumata Rau – University of Auckland, comments:
“I had earlier commented regarding the fear around electricity for NZ in 2024 when Chat GPT just appeared. My sentiment remains still the same.
“At that time I had also shared about the Tiwai Point closure (which never happened) that the resulting excess energy in the South Island could be used locally for an alternate purpose or transported to the North Island.
“We are in 2026 and now countries and regions are really going after building core-capability of AI and data-centres, and New Zealand is still an attractive place to build AI loads supported by our current and growing electricity generation in the immediate coming years.”
Conflict of interest statement: “No conflicts of interest. Current funding regarding electricity innovation and resilience of energy infrastructure comes from Future Architecture Network, MBIE SSIF and QuakeCore (Te Hiranga Ru – NZ Centre of Earthquake Resilience– TEC Funded CoRE) respectively. Have made independent submissions on electricity infrastructure and markets in the past.”