Victoria bans data centres from residential zones and near schools

The strategy will require data centre developers in Victoria to bankroll parks and TAFEs. (ABC News: John Gunn)

Victoria will require new data centres to source their own renewable energy under a strategy unveiled by Premier Ben Carroll today.

A 150-metre buffer between any new data centres and homes will also be mandated to quell community concerns over the burgeoning industry.

Data centre construction is an important issue in some electorates ahead of Victoria's election, scheduled for November 28.

All new data centres built in Victoria will have to source their own renewable energy and will be banned from using drinking water under the state government's new rules for the booming sector.

Data centres will not be permitted to be built near schools and childcare centres, and the government will introduce a 150-metre buffer between any new data centres and homes.

Developers will also have to pay towards a local investment fund to help build TAFEs and parks.

The policy comes amid rising community opposition to the rapid construction of data centres, including from some Labor MPs and candidates.

"In Victoria, we set the rules — data centres must power themselves, protect homes and pay their way," Premier Ben Carroll said.

Mr Carroll said the changes to the state's planning regulations would be made "as soon as possible", but declined to set a date.

Ben Carroll says communities need to benefit from data centre development. (ABC News)

The changes would also not be retrospective, meaning planning applications already approved or currently before the minister would not need to abide by the proposed rules.

Data Centres Australia chief executive Belinda Dennett said the changes were "disappointing" and imposed restrictions that were not applied to other industries.

"A blanket 150-metre setback is not tied to actual impact. It singles data centres out for a restriction that comparable industrial uses, such as warehouses and logistics facilities, do not face," she said.

Ms Dennett said people had "legitimate questions" around data centre development but said the sector was moving to engage "constructively" in local communities.

The Victorian Greens have campaigned on opposition to data centre development, particularly in Melbourne's inner west, and have called for a moratorium on all new data centres.

Greens AI and data centres spokesperson Sarah Mansfield declared the government's announcement a "huge win for communities who have fought tooth and nail against Labor's data centre free-for-all".

But Ms Mansfield said tech companies should compensate residents already living nearby data centres and said the government should provide "acoustic modelling and health and environmental advice" behind the 150-metre buffer.

Data centres require vast amounts of water to cool their servers, sparking community concerns the sector will strain supplies of clean drinking water.

The government says less than 1 per cent of the state's drinking water is being used for data centre cooling, but concedes it should be zero.

The new rules will require data centres to use recycled or other sources of non-drinking water, and developers will be forced to find offsets if they cannot meet those requirements.

The state government has fast-tracked multiple planning applications for data centres under its controversial Development Facilitation Program, which allows companies to bypass local councils and apply directly to the planning minister.

ASX-listed tech company NextDC had a $1 billion data centre in Port Melbourne approved by the minister within 75 days earlier this year.

Data Centres Australia figures showed the country had 162 data centres with a combined IT capacity of 1.5 gigawatts as of March of this year.

Melbourne is the fastest-growing market and there are 50 already operating in Victoria, concentrated in the city's west.

"Data centres are critical infrastructure providing services like emergency response, air traffic control, robotic surgery and hospital services," Ms Dennett of Data Centres Australia said. 

By 2030, data centre energy consumption in Victoria is set to quadruple.

Under the state's proposed new rules, data centres will have to provide their own renewable energy and storage to cover the increased demand data centres put on energy supplies.

Anthony Carbines was recently appointed Victoria's first minister for artificial intelligence and the digital economy.

"Data centres power our lives and support banking, healthcare, transport and emergency services,'' Mr Carbines said.

Several data centres have been established in Melbourne's inner west over the past decade. (ABC News: Kyle Harley)

On Wednesday, a Senate inquiry into AI and data centres will hold hearings in Melbourne to air community concerns.

Prime Minister Anthony Albanese has tried to establish a national approach to data centres but could not reach consensus with all the states on renewable energy requirements.

The Victorian government said it was working on other planning rules for data centres including "fair community consultation".

Ms Mansfield, the Greens MP, said Labor had been "forced to try to rein in data centres weeks out from an election to save their seats".

Earlier this month, electricity distributor Jemena was forced to pause the installation of high-voltage power poles in Melbourne's inner-west following fierce backlash from residents.

The 15-metre-high poles were designed to facilitate increased power loads, particularly from NextDC's West Footscray data centre, and were also opposed by Maribyrnong council, which accused Jemena of failing to consult the community.

The data centre, located metres from homes, has also come under fire for the air pollution emitted by its back-up diesel generators, constant hum, and plans to expand.