Forecasts show data centre boom will strain electricity grid

Federal Government

The Australian Energy Market Operator says data centres are quickly becoming a big power user, and it has raised its demand forecast from a year ago.

In short:

Data centres may use as much electricity by 2036 as all homes in NSW and Victoria use today, according to the market operator’s forecast.

The operator says the count of data centres in development has risen from 97 to 225 since last year.

What’s next?

Prime Minister Anthony Albanese will outline more of his energy rules for data centres at a Business Council dinner today, with the rules expected to be finalised by national cabinet on Wednesday.

The rush of data centres coming to Australia will use almost as much power from the grid in ten years as all households in New South Wales and Victoria do now, the latest forecast shows.

AEMO looked at the expected power needs of 225 known projects at different development stages that want to connect to the national electricity market, and says even with high uncertainty about how many will proceed, it now expects a power demand surge far larger than its estimate a year ago.

There are 165 data centres already running across the national electricity market, which covers every state and territory except Western Australia and the Northern Territory.

Those data centres use about 3 % of the electricity supplied to the grid, but in ten years AEMO expects power‑hungry data centres to take 13 % of demand – even after allowing for many projects being cancelled.

That equals 34 TWh of electricity from the grid by 2036, almost the same as the 38 TWh used by every home in NSW and Victoria today.

A year ago AEMO predicted data centres would not reach that level until after 2050, and even in its “accelerated transition” scenario it expected about 24 TWh by mid‑2035.

While the outlook is uncertain, especially after 2030, AEMO has recorded a data‑centre rush over the past 12 months, with known projects in development more than doubling from 97 to 225 since last year.

There are more than double the number of data centres in development compared to a year ago. (ABC News: Morgan Timms)

Most of this growth is expected in NSW and Victoria, with South Australia the next‑largest in the national electricity market.

Rules will require data centres to bring renewable energy with them

The federal government worries the data‑centre boom, promising up to $150 billion of new investment, could strain the grid and raise power prices without action.

At a Business Council dinner tonight, Prime Minister Albanese will tell business leaders that AI’s success depends on keeping energy bills from rising.

“Australia can attract data‑centre investment, but we must keep our social licence,” Mr Albanese will say.

“That means keeping energy bills low, protecting water supplies, and choosing suitable locations.”

The Albanese government plans to set new rules at a national cabinet meeting on Wednesday that would force data centres to guarantee new renewable supply to cover their power use, to offset the forecasted electricity surge.

Data centres would need power‑purchase agreements with new renewable projects – helping those projects get financing, a hurdle that now blocks several renewables projects that cannot prove customer demand for loans.

The Coalition has criticised this, saying the federal government is tying a huge economic chance to the renewables shift, which could hurt investment in Australia.

Queensland also opposes the renewables guarantee, meaning the federal government may have to pass “guarantee of origin” laws to override Queensland’s refusal to link data centres to renewables.

Those rules would apply when data centres apply to connect to the grid.

Resources Minister Madeleine King said there have been “troubling” global views about data centres, and the government wants Australian data centres to have an “Australian flavour.”

“If these data centres lack community acceptance, we will have a short‑term boom that no one is happy with,” she told ABC Radio National.

She said people are most concerned about energy, location and water use.

Madeline King says worldwide there have been “troubling” views about data centres. (ABC News: Lauren Smith)

Dan Tehan, Shadow Energy Minister, criticised the government’s “ideologically‑driven renewables‑only approach” and said each state should decide its own energy mix for data centres.

“States like Queensland want to use all their abundant energy. They should be allowed to do that to attract data centres, and we should encourage all states to do so,” he said.

Mr Tehan said the Coalition is ready to work with the government on data‑centre principles, noting recent cooperation on the NDIS bill and gambling‑advertising changes.

“Where legislation exists, whether for data centres or a gas reservation scheme, we will always work in the national interest.”

Conditions for AI on copyright, safety and security

Wednesday’s deal will also ask states and territories to limit community impact, avoiding big projects in “inappropriate locations” near homes, schools and prime land that could be used for housing.

Data centres will also need more efficient technology to cut water use and cover their own water‑infrastructure costs.

Queensland’s rejection of rules linking data‑centre construction to new renewables means the federal government will have to pass legislation to override the state.

Alongside renewables and water rules, Mr Albanese said next year’s legislation will set AI conditions on copyright, security, safety and skills development, under a single framework in the prime minister’s department.

“We must set conditions to attract investment in frontier AI training, ensuring AI is safe, secure, respects copyright and gives creators control and payment,” Mr Albanese said.

“Getting this right can make Australia the infrastructure partner for our region, helped by our Five Eyes partnership. It will boost our national sovereignty.”

While the government hopes to pass the rules quickly so they apply in all states and territories, the Greens say they will not simply rush data‑centre laws through.

“Data centres should use more renewables – but huge energy and water use is just one reason people worry about the massive AI data‑centre rollout in our communities,” Greens leader Larissa Water said.

“We don’t need to roll out the red carpet for tech bros. The government should pause data centres until we get the rules right.”

AEMO said the grid’s reliability is not yet at risk, but warned it depends on new supply arriving “on time” to replace retiring coal plants and meet rising electricity demand.

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