Data centre demand is growing fast and could account for up to 11% of Australia’s electricity consumption by 2035. This boom is good for the economy as it is expected to attract around $85 to $135 billion in investment, but it could be risky if energy planning doesn’t keep up with the demand.
Rapid growth in electricity use to meet data centre demand
The rise of digital infrastructure like AI and cloud computing creates high demand for data centres all over the world. These technologies require significant and continuous computing capacity, meaning data centres operate as large, constant electricity loads rather than variable demand sources.
Unlike traditional industrial loads, data centres require high reliability and operate 24/7, putting continuous pressure on the energy system.
Outside the US, Australia is becoming a key location for data centre growth, with 50–100 projects under development. This increase in demand is beginning to reshape the energy market, creating a more complex energy landscape for developers, investors, and policymakers alike.
Where the pressure comes from
- Data centres operate 24/7 and require continuous and high-capacity power, unlike households and most industries that have variable demand.
- Most facilities are clustered in major urban centres where electricity demand is already high, so it adds pressure on energy networks including substations and transmission lines.
- A single large data centre can use as much electricity as tens of thousands of homes, increasing demand particularly at the local level.
Why it becomes a problem
- When multiple data centres connect to the geographical part of the grid, existing infrastructure is likely to become congested, requiring upgrades before new capacity is available.
- Establishing grid connections for large energy users like data centres is complex and can take years, as network service providers (NSPs) assess capacity and plan upgrades and maintenance.
- Data centres can be developed in 18–24 months, while major network upgrades can take 5–10 years, creating a timing mismatch.
Price – impact on electricity costs
How does data centre growth affect wholesale electricity prices? Electricity prices are driven by supply and demand, meaning higher demand leads to higher prices when supply is constrained.
Data centres currently use about 1% of Australia’s electricity. If not matched by additional renewable energy and battery storage, this could push wholesale electricity prices up by 2035 by:
- 26% in NSW,
- 23% in Victoria,
- 14% in Queensland,
- across Australia, it could rise by up to 20%.
Higher wholesale prices can also flow through across the entire energy market, to large energy users, developers, and long-term energy contracts.
Pressure – investment and emissions risk
While data centres are attracting significant investment, this growth also requires parallel investment in energy infrastructure. Without it, the system faces increasing cost and emissions risks.
To work best, rising data centre demand should be supported by investment in:
These assets are essential to deliver reliable and scalable electricity supply. However, as energy infrastructure typically takes longer to develop, the key risk is that supply will lag demand.
If renewable capacity is not delivered in time, additional demand is likely to be met by fossil fuel generation. Without additional clean energy investment, it could also increase emissions across the NEM by 14%, or it adds around 6 million tonnes of CO₂ each year.
Managing the risk with renewables and storage
Renewable energy and battery storage combined with traditional generation like gas turbines can help:
- stabilise supply,
- reduce reliance on fossil fuels,
- limit price spikes,
- support a reliable and affordable electricity supply.
Developers are also exploring strategies such as co-locating with renewable energy projects and securing long-term energy agreements to improve energy security and reduce costs.
What this means for investors and policymakers
Data centre growth is expected to attract around $85–135 billion in investment, highlighting the need for more integrated and coordinated energy planning.
Infrastructure, policy and investment decisions must align to ensure sufficient generation, storage and network capacity are delivered alongside new demand.
At the same time, energy availability and pricing are becoming key constraints, while regulatory and compliance requirements continue to evolve. As a result, energy strategy is now a central consideration in data centre investment.