Power prices are finally falling. Experts say data centres could change that

Power prices are finally falling. Experts say data centres could change that Australian energy officials are preparing for a potential spike in electricity costs as data centres continue to consume record amounts of power, according to recent analysis. With demand from these facilities expected to grow fivefold by 2035, analysts warn that operators will likely rely on existing infrastructure rather than developing new power sources. This trend could lead to increased pressure on wholesale electricity prices, which account for nearly half of consumers' bills. The issue is being discussed during a meeting of state and federal energy ministers, who are examining how the rapid expansion of data centres might affect the national power system. Currently, data centres account for approximately 2 percent of average electricity demand on Australia’s main grid. However, projections indicate that figure could climb to around 10 percent within a decade. This shift is driven by the increasing reliance on data centres to support artificial intelligence technologies, particularly large language models. These facilities are essential for running cloud-based services, streaming platforms, and other digital applications that require high computational power. Despite the growing importance of data centres, uncertainty persists over whether the demand will materialize as predicted. Earlier this month, Prime Minister Anthony Albanese announced plans requiring data centres to generate as much power as they consume, aligning with broader goals to promote renewable energy. However, critics argue that the policy lacks specific guidelines, leaving developers without clear direction. Dylan McConnell, a researcher from the University of New South Wales, noted that the “devil is in the detail” and emphasized that the long-term impact of such regulations remains unclear. McConnell pointed out that renewable energy projects typically take longer to complete compared to data centres, which can be constructed more rapidly. He explained that while data centres can be built in months, renewable projects such as wind or solar farms often require several years due to permitting, land acquisition, and equipment delays. Additionally, the global shortage of turbines, driven largely by demand from U.S. data centres, has further extended timelines for gas-fired power plants, which remain a critical backup option for many regions. The situation raises concerns about the ability of the current power system to keep pace with rising demand. According to McConnell, data centres are increasingly turning to existing power sources rather than investing in new generation capacity. This approach could result in a misallocation of resources, where available power is diverted from other sectors to meet the needs of data centres. He warned that this dynamic could create a bottleneck, especially if the number of data centres continues to expand without corresponding growth in renewable energy infrastructure. Energy consultants have echoed similar warnings. A report by Baringa, commissioned by the Clean Energy Finance Corporation, estimated that data centre consumption could rise from 300 megawatts in the current financial year to as much as 3,200 megawatts by mid-decade. This level of demand would represent 8 to 11 percent of Australia’s total electricity usage in 2035. The report also highlighted the potential economic impact, forecasting up to $135 billion in investment in data centre operations. Without additional energy capacity, the report suggested that wholesale prices could experience “significant” fluctuations. In New South Wales and other major states, regulators are closely monitoring the situation as they seek to balance the benefits of technological advancement with the challenges of maintaining a stable and affordable power supply. As the debate over energy policy continues, the role of data centres in shaping the future of Australia’s electricity market remains a central topic of discussion.