Major Energy Consumers: What Impact Will Datacentres Have on Australia’s Electricity Costs, Water Resources, and Emissions?

What has been said about datacentres – in the US and Australia – this week?

In the US, President Donald Trump introduced “ratepayer protection pledges” which obligate tech companies to satisfy their own energy requirements.

“Many Americans are concerned that the energy demands from AI datacentres might unjustly raise their electric utility bills,” he stated. “These companies have the option of constructing their own power facilities as part of their operations, ensuring that no one else’s costs escalate.”

In Australia, Energy Minister Chris Bowen acknowledged the significant energy consumption of datacentres, indicating that this would be addressed in a forthcoming strategy targeting AI and datacentres.

“Constructing datacentres demands the establishment of new energy sources, which must be renewable. We also desire to ensure that energy consumption includes flexibility and redundancy,” he said.

A coalition of environmental and energy organizations, which includes the Clean Energy Council and the Australian Conservation Foundation, has proposed a set of “public interest principles for datacentres.” These principles emphasize investing in new renewable energy sources and responsibly managing water usage.

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“If you intend to establish a datacentre, it is essential to also invest in renewable energy and water recycling to support it,” said Adam Bandt, CEO of ACF. “Large tech companies must contribute equitably to avoid exhausting our resources.”

The Australian Energy Council points out that key policy questions are still up for discussion: Will all datacentres need to operate on 100% renewable energy? Will this requirement be based on total energy demand, or will time-of-use considerations be accounted for?

Simultaneously, an inquiry in New South Wales is set to explore the social, environmental, and economic impacts of the datacentre proliferation.

Are datacentres a threat to Australia’s electricity supply for households and businesses?

Currently, datacentres account for approximately 2% of electricity drawn from the national grid; however, projections from the Australian Energy Market Operator (AEMO) indicate that this figure could triple within the next five years.

By 2030, AEMO anticipates that energy consumption by datacentres could surpass the energy utilized by the entire fleet of electric vehicles in Australia. Furthermore, by 2035, the sector could require up to 21.4 terawatt-hours of energy, which is close to the annual energy consumption of Australia’s four aluminum smelters.

AGL, a leading electricity provider in Australia, predicts that actual demand may surpass AEMO’s estimates.

The energy and water demands of the industry are intricately linked to cooling systems—essentially either air conditioning or water—since servers and other computing devices convert electric energy into heat.

The challenge of accommodating this surging demand is a global issue. The International Energy Agency (IEA) reports that globally, datacentre energy consumption is expanding four times faster than that of any other sector. Datacentres are proliferating, with increasing occurrences of hyperscale facilities.

Hyperscale datacentres focused on AI can boast capacities exceeding 100 megawatts, consuming a comparable amount of electricity annually as 100,000 households.

Will datacentre growth affect electricity prices?

There is no question that this expansion will influence the overall cost of electricity, inevitably reflecting in consumer prices. Dr. Dylan McConnell, an energy systems researcher at the University of NSW, notes, “To accommodate this demand, a larger energy infrastructure will be necessary, which will lead to the utilization of more costly resources.”

A report by Baringa consultants for the Clean Energy Finance Corporation (CEFC) projects that, by 2035, the growth of datacentres could elevate wholesale electricity prices by about 26% in New South Wales and 23% in Victoria, primarily due to the reliance on more expensive gas peaking generation to meet demand.

“This dependency will not only inflate prices but may also contribute to a 14% increase in grid emissions across the national electricity market,” the report indicates.

Julia Hinwood, head of infrastructure at CEFC, asserts that Australia can circumvent these challenges by “investing early in renewable energy and storage solutions to support the sector.”

According to Data Centres Australia, power purchase agreements and onsite solar power cater to approximately 70% of the industry’s energy consumption.

The group’s CEO, Belinda Dennett, states, “The datacentre industry is one of the largest investors in renewable energy.”

What about Australia’s ability to cut emissions and meet climate targets?

Despite the growth in renewable energy in Australia, McConnell warns that the rate of growth remains insufficient to meet the anticipated renewable energy and emissions targets. The increasing demand from datacentres may exacerbate this hurdle.

“If we find ourselves in a circumstance where demand is escalating far faster than expected and renewable energy sources cannot keep pace, we will merely be fulfilling that new demand without reducing coal consumption,” he elaborates.

Australia’s emissions projections suggest that augmented demand from datacentres will lead to a deceleration in emissions reductions in the power sector post-2035.

Are they a threat to the water supply?

According to Data Centres Australia, the industry is classified as “modest water users,” and underscores the potential for reducing dependence on potable water through closed-loop cooling and using recycled water systems.

However, water authorities anticipate that the demand for drinking water will increase significantly. In Sydney alone, datacentre demand is expected to reach 250 megalitres daily by 2035, roughly equivalent to the drinking water needs of Canberra’s entire population. Meanwhile, Melbourne Water has indicated that development applications for new hyperscale datacentres already exceed the combined water demands of nearly all top 30 commercial customers in the state.