Melbourne, Australia, is on the brink of a water crisis as a combination of rapid population growth and the proliferation of data centers strain the city’s water supply. According to the Victorian government’s Annual Water Outlook, much of the state experienced lower-than-average rainfall in 2025, leading to historically low water reserves.
This month, major storage facilities across Victoria were only 61 percent full, a significant drop from 80 percent at the same time in 2024. Melbourne’s water storage was at 76 percent capacity, 12 percent lower than last year. These levels would have been even more dire had the government not ordered 50 billion liters of desalinated water from the Victorian Desalination Plant near Wonthaggi. However, if dry conditions persist, Melbourne and Geelong could face “severe” water restrictions in 2026, even with the desalination plant operating at full capacity.
Population Growth and Data Centers: A Dual Challenge
The water shortage comes as Victoria experiences a resurgence in population growth following the COVID-19 pandemic. The state saw a net gain of 123,000 people, primarily through overseas migration, despite continued negative interstate migration. Melbourne, now home to 5.4 million residents, is growing faster than Sydney in percentage terms.
Adding to the pressure is the rise of artificial intelligence and the data centers that support it. These facilities, essential for applications like ChatGPT, require vast amounts of water for cooling, with most of it evaporating during the process. While some centers, like Firmus’ planned AI factory in Tasmania, use closed-loop systems that don’t draw on local water supplies, they are exceptions.
In July, Greater Western Water reviewed 19 applications from data centers that would collectively consume almost 19 billion liters of water annually, equivalent to the usage of 330,000 Melburnians.
Saul Kavonic, head of energy research at MST Macquarie, noted that the sudden demand for water by data centers caught state governments unprepared. “Policy makers appear to have not adequately planned for rising water demand from population growth, let alone new demand from data centers,” Kavonic stated. He warned that water shortages are limiting Australia’s data center growth and, by extension, its AI, cybersecurity, and technology agenda.
Exploring Solutions: Desalination and Beyond
In response to the looming crisis, Water Minister Gayle Tierney has released a Water Security Plan, supported by an expert task force. One proposal includes an $840 million expansion of the Victorian Desalination Plant to add 50 billion liters of water to the system, with a potential second facility in Melbourne’s west.
However, not everyone agrees that desalination is the best solution. Tim Fletcher, a professor of urban ecohydrology at the University of Melbourne, advocates for more sustainable approaches. “There’s not a shortage of water, it’s just about using it effectively,” Fletcher explained. He suggests harnessing stormwater and wastewater, which are cheaper and address other environmental issues like erosion and flooding.
“Political governments tend to have a preference for single, simple solutions where they can just sign off on a contract – but that’s certainly not the best approach here,” Fletcher said.
Looking Ahead: A Call for Comprehensive Planning
The water crisis in Melbourne underscores the need for comprehensive planning and investment in sustainable water management solutions. As the city continues to grow and technology demands increase, balancing these pressures with environmental sustainability will be crucial.
The Victorian government faces a critical decision in the coming years: invest in expanding desalination capabilities or explore alternative solutions like stormwater harvesting. The outcome will not only affect Melbourne’s water security but also its position as a hub for technological innovation.
As the situation develops, experts and policymakers will need to work together to ensure that Melbourne can meet its water needs without compromising its future growth and sustainability.
