Moving the Mountain
Alexander Hoysted
Co-locating Data Centres Where Renewable Energy is Plentiful
Last week, we explored Gridlock — the transmission bottleneck in our national electricity grid. Transmission is expensive though, and takes a long time to build. What if we bought the power directly to the data centres themselves?
Innovate and Co-locate!
Co-location means building data centres near renewable energy generation alongside our new Renewable Energy Zones (REZs). Pop the hyperscalers next to a solar farm and let rip.
It sounds simple, but it ain’t (it never is). There’s trade-offs. It’s hard, for example, to directly connect a solar farm with a data centre. For one thing, DC operators need constant energy to maximise their RoI on computer chips, which wind and solar can’t provide without batteries.
For another, co-location is also a co-ordination problem between industries, economics, and communities. These projects take years of intensive planning.
That’s why, up to now, hyperscalers have largely secured their ‘renewable’ status through power-purchase agreements (PPAs) - they can invest in renewable energy projects, while still building where it makes commercial sense.
Why Bring it Up?
The Australian Energy Market Operator (AEMO) predicts we need 10,000km of new transmission capacity, so policymakers are already doing what they can to fix the gridlock situation.
Meanwhile, Morgan Stanley Research shows data-centre electricity demand surging to 10–15% of Australia’s total consumption by 2030 — equivalent to the size of manufacturing.
We don’t have much time. Business will do what business does, and take the power that’s available to them right now, much of this could be coal and gas.
Co-location
Co-location flips the logic. By building data centres within REZs — close to solar, wind and storage — we can:
Cut grid congestion and transmission losses.
Anchor new renewable projects with long-term offtake certainty.
Lower carbon footprints for cloud operators and investors.
Deliver regional jobs and skills growth where it’s needed most.
In effect, co-located data centres become anchors for Australia’s renewable energy economy, concentrating compute and turning REZs into Digital Energy Zones.
Trade-offs
Like anything in life, there are tradeoffs here to take into account. REZs often lack the water, fibre, and ‘behind the meter’ infrastructure that data centres need.Local resistance to large projects is rising. The new Guarantee of Origin Bill 2024 emphasises transparency and community benefits, but a recent inquiry in New South Wales also revealed that regional communities don’t trust what industry and government are saying. Data centres can be built fast; transmission and permitting for renewables are often slower. Current schemes like the Capacity Investment Scheme (CIS) underwrite generation, but not co-located digital loads. Without policy reform, the economics of co-location may remain just out of reach.
Fixes
The big winner of the latest Capacity Investment Scheme (CIS) was solar combined with battery farms. It makes sense; for around-the-clock energy, you need MW when the sun isn’t shining. A battery lets you do that. We need more investment in batteries.
Microsoft signed a PPA with a 300MW solar farm last month. PPAs are another way to do it, but few corporate PPAs have been signed recently. The other way would be to colocate data centres with solar + battery farms in REZs. If gridlock is the bottleneck, co-location is the release valve — the key to aligning Australia’s next two great booms: renewables and data.
It’s becoming quickly apparent the new renewable world will be far more decentralised than our coal-powered one. Industry - like households with solar panels on their roofs - will start to co-locate too.
