Rubber, Meet Road
We’ve arrived. After years of breathless hype, the government has taken the first few steps toward placing guardrails around the nascent AI industry, announcing the National AI Plan and a new institute for AI safety. Bravo. Alongside these tentative moves, a heretofore unassuming industry suddenly finds itself in the spotlight (and the money): data centres.
Emerging from IT basements, accelerating up with the rise of cloud computing, and now booming on the back of AI investment, data centres are critical infrastructure. They are the plumbing of the digital economy.
Moving data and dispersing the heat that comes with it is a power-hungry business. If demand forecasts are even close to correct, data centres will soon gobble up between 8-11% of electricity across the national grid. If they are one of the unexpected winners of AI’s emergence, they are also an inconvenient addition to a system already straining under an ambitious transition to renewable energy.
Simultaneously, the Australian Energy Market Operator forecasts an additional 6,000 kilometres of new transmission will be required to realise Australia’s renewable energy objectives. Failure to connect enough clean generation to meet rising data-centre demand will all but guarantee the continued operation of coal-fired generators - just as they reach retirement age.
We are now in a decisive phase. A sector expecting to add 10 gigawatts of new capacity by 2030 will drive an estimated 35 to 70 terawatt-hours of additional electricity demand. For context, total annual demand across the National Electricity Market sits at around 180 TWh.
Fortunately, Australia has an opportunity to ensure data centres support the energy transition rather than undermine it. As part of the National AI Plan, Industry Minister Tim Ayers announced the government would set out national data-centre principles, including expectations around sustainability.
But it’s not all sunshine and rainbows. A recently reported letter from the Australian Industry Group raised concerns about the grid’s ability to absorb this new demand, while no new policy or regulatory framework has yet been announced to address it. At present, data centres report energy use and emissions under the NGER framework, but those disclosures are coarse, delayed, and — for corporate groups — often not required at the facility level.
That is a problem for energy planning. Modern power systems need granular visibility. They need clear information about energy mix, load profiles and future demand, or regulators are flying blind and the public is left in the dark. Fortunately, we can look abroad for some solutions.
Other jurisdictions have learned that digital loads require bespoke rules. Ireland, for example, now requires new data centres to bring additional renewable supply and on-site backup power that can support the grid during emergencies and peak demand. The European Union mandates detailed, facility-level reporting of energy use and emissions. In Texas, recent legislation imposes performance and curtailment obligations on large, flexible loads while California passed a bill protecting ratepayers from any data centre-derived impacts on power prices.
Australia, of course, has its own unique challenges, not least the vast distances data and power must travel. Incentivising new facilities to locate near Renewable Energy Zones could reduce transmission bottlenecks, ease curtailment from wind and solar farms, and deliver real economic benefits to regional communities.
Data centres could be deliberately paired with new renewable projects as “anchor loads”, underwriting investment in wind, solar and storage. With better, near-real-time visibility of their electricity demand, operators and regulators could then actively coordinate when and how that load runs, and turn data centres into collaborators in managing a more decentralised grid.
There’s a massive opportunity here. The risk is that the transition stalls, power prices surge, and public support for renewables and AI frays. We don’t need that in an already-volatile political environment.
Sensible planning, on the other hand, could make this a rare win-win for all Australians.
