The demand for electricity by data centers in Australia could triple over the next five years, with projections indicating it may surpass the energy consumed by electric vehicles by 2030.
Currently, data centers obtain approximately 2% of their electricity from the National Grid, equating to around 4 terawatt-hours (TWh). The Australian Energy Market Operator (Aemo) is optimistic about this share significantly increasing, projecting a growth of 25% annually to reach 12TWh, or 6% of grid demand by 2030, and 12% by 2050.
Aemo anticipates that the rapid expansion of this industry will drive “substantial increases in electricity usage, especially in Sydney and Melbourne.”
In New South Wales and Victoria, where the majority of data centers are situated, they contribute to 11% and 8% of electricity demand, respectively, by 2030. Electricity demand in each state is projected to grow accordingly.
Tech companies like OpenAI and SunCable are pushing Australia towards becoming a central hub for data processing and storage. Recently, the Victorian Government announced a $5.5 million investment aimed at establishing the region as Australia’s data center capital.
However, with 260 data centers currently operating across the nation and numerous others in the pipeline, experts express concerns about the implications of unchecked industry growth on energy transition and climate objectives.
Energy Usage Equivalent to 100,000 Households
The continual operation of numerous servers generates substantial heat and requires extensive electricity for both operation and cooling.
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Globally, the demand for data centers is growing at a rate four times faster than other sectors, according to the International Energy Agency. The number and size of centers are escalating, with large facilities becoming increasingly common.
As highlighted by the IEA, “AI-centric hyperscale data centers possess a capacity exceeding 100MW and consume energy equivalent to what 100,000 homes use annually.”
Professor Michael Blair, a mechanical engineering professor at the University of Melbourne and director of the Net Zero Australia project, stated that there is a significant connection between electricity and water usage due to cooling requirements, as servers convert electrical energy into heat.
“In confined spaces with many computers, air conditioning is required to maintain an optimal operating temperature,” he explains.
Typically, digital infrastructure is cooled through air conditioning or water systems.
Ketan Joshi, a climate analyst at the Oslo-based Australia Institute, shares that many tech companies are reporting a surge in electricity consumption compared to last year. The intensity of energy usage has also been increasing across several metrics: energy per active user and energy per unit of revenue, when compared to five years ago.
“They aren’t consuming more energy to serve additional users or increase revenue,” he asserts. “The pertinent question is: why is our energy consumption escalating?”
In the absence of concrete data, Joshi suggests that the undeniable growth in demand is likely attributed to the rise of energy-intensive generative AI systems.
“Running Harder to Stay in the Same Place”
Joshi is monitoring this issue, as data centers globally are evidenced to place substantial and inflexible demands on power grids, resulting in two significant repercussions: increased dependence on coal and gas generation, and diverting resources away from the energy transition.
While data center companies often assert they operate using clean energy through investments in solar and wind, Joshi remarks that there can often be a mismatch between their companies’ persistent reliance on the grid and their renewable energy production profiles.
“What’s the ultimate impact on the power grid?” he questions. “Sometimes, we have surplus energy, and other times, there isn’t enough.”
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“So, even if everything appears favorable on paper, your data center might be inadvertently supporting fossil fuel transportation.”
Moreover, instead of renewable energy sources displacing coal and gas, these sources are accommodating the growing demands of data centers, Joshi notes. “It’s like sprinting on a treadmill—no matter how hard you run, it feels like the speed is continually increasing.”
The demand for electricity has surged to the extent that some companies have resorted to restarting their operations. Nuclear power plants in the U.S. that were once mothballed are being revived as demand for gas turbines increases. Some Australian developers are even proposing the installation of new gas generators to fulfill their energy needs.
Aemo predicts that by 2035, data centers could consume 21.4TWh, nearing the country’s annual energy consumption, comparable to that of four aluminum smelters.
Blair pointed out that AI adoption is in its infancy, and the outlook remains uncertain, as Aemo’s 2035 energy consumption scenarios range between 12TWh and 24TWh, indicating that the future might not be as expansive as anticipated.
In the National AI Plan released Tuesday, the federal government recognized the necessity for advancements in new energy and cooling technologies for AI systems. Industry Minister Tim Ayers stated that principles for data center investments will be established in early 2026, emphasizing requirements for supplementary investments in renewable energy generation and water sustainability.
“Undeniable Impact” on Electricity Prices
Dr. Dylan McConnell, an energy systems researcher at the University of New South Wales, noted that while renewable energy is on the rise in Australia, it is not yet progressing rapidly enough to meet required renewable energy and emissions targets. The expansion of data centers will complicate these challenges.
“If demand escalates beyond projections and renewables can’t keep pace, we’ll end up meeting that new demand instead of displacing coal,” he explains.
Unlike electric vehicles, which enhance demand on the grid while lowering gasoline and diesel usage, data centers do not reduce fossil fuel consumption elsewhere in the economy, according to McConnell.
“If this demand materializes, it will severely hamper our emissions targets and complicate our ability to phase out coal in alignment with those targets,” he advises.
In its climate targets recommendations, the Climate Change Agency stated: “Data centers will continue to scale up, exerting deeper pressure on local power sources and further hampering renewable energy expansions.”
McConnell asserted there will be a significant effect on overall energy costs, influencing electricity prices.
“To support this load, we will need a larger system that utilizes more costly resources.”
Source: www.theguardian.com
