Australia’s data centre boom risks driving up the cost of electricity and derailing emissions targets unless governments force operators and their global tech customers to directly fund new renewable energy projects, climate advocates warn.
A new report from the Climate Council, Clouded future: Managing risks of the data centre boom, lands as Australia jostles to become one of the world’s hottest destinations for data centre investment, currently sitting second only to the United States. The country is home to at least 162 operational data centres, with about 90 more in the pipeline, driven largely by the surge in artificial intelligence.
That growth carries a heavy energy cost, with data centres using about 2 per cent of electricity in the east-coast grid in 2025, a number that is expected to triple by 2030 – roughly equal to the electricity needs of every home in Victoria – according to the Australian Energy Market Operator.
The sector’s demand has nearly doubled in Victoria over the past year and risen 18 per cent in NSW.
Without urgent intervention to ensure demand is matched by more renewables, the Climate Council said, wholesale electricity costs in parts of eastern Australia could potentially rise by up to 26 per cent by 2030.
“If we add more demand without building more supply, prices will rise,” Climate Council energy expert and Griffith University associate professor Joel Gilmore said. “Unchecked data centre growth risks reversing the progress renewables have made in reducing prices. The last thing we need is to be forced to rely on more expensive fossil fuels.”
However, the projection of a 26 per cent jump is based on the unlikely scenario in which new data centres are aggressively rolled out without any uplift in renewable generation and storage above baseline forecasts to cater for them, therefore requiring coal-fired power plant closure delays and a ramp-up of gas-powered output.
Industry leaders point out that many data centre operators have already been striking long-term power purchase agreements with wind, solar and storage projects, while federal and state governments are working on enforceable rules mandating them to invest in enough new capacity to offset their consumption and avoid straining the grid.
Doubts also loom about how many data centres will come online in the future. Experts argue some of the lofty forecasts cited by critics are inflated by speculative applications that may not progress, often referred to as “phantom demand”.
Still, if every proposed project went ahead, the Climate Council says, their combined maximum demand would top 21 gigawatts – more than seven times the capacity of Eraring, the country’s biggest coal-fired power station. The proposed 1.2-gigawatt Mamre Road facility in western Sydney would alone surpass the Tomago aluminium smelter by more than 25 per cent, making it Australia’s single largest energy user.
The report cited modelling from Baringa last year, which found that using gas rather than renewables and storage to meet data centre demand growth could boost wholesale electricity prices 26 per cent in NSW and 23 per cent in Victoria by 2035. Wholesale costs typically make up about 40 per cent of retail power bills.
The Climate Council warns gas companies are seizing on data centre demand to justify new fossil fuel projects. Chief executive Amanda McKenzie dismissed the argument that natural gas was needed to firm the grid while renewables caught up.
“It’s like saying that buying a new pack of cigarettes will help you quit smoking. It’s nonsense,” she said. “Building new gas for new data centres is just a gas industry recipe for their own profits at the expense of the rest of us, who benefit the most from cheap renewable power.”
Official forecasts, however, indicate gas will be vital to balancing a grid dominated by renewables. In its 25-year road map, the Australian Energy Market Operator insists a bigger fleet of fast-response gas-powered generators, known as “peakers”, is needed to play an infrequent but crucial role covering supply shortfalls, especially during protracted stretches of low wind and sunlight that cannot be plugged by batteries or hydropower alone.
Data Centres Australia chief executive Belinda Dennett rejected the charge that the sector was driving fossil fuel growth, saying the energy mix was beyond operators’ control. “Most data centre operators connect to the grid,” she said. “The make-up of the grid is based on government and energy industry decisions.”
McKenzie said the single most important measure going forward would be a signed contract for additional renewable energy before a project won approval.
The industry says it is already going further voluntarily than any other sector. Dennett said power purchase agreements and certificates already offset 70 per cent of data centre energy use, and had added 1.5 TWh of new renewable generation to the grid. “Data centre operators and their customers have net zero ambitions and often sustainability-linked loans,” she said. “No other industry is doing this.”
She rejected the report’s central charge that those deals merely soaked up renewables that would have been built anyway, arguing a contract alone could not rescue a project that lacked planning approval, transmission or equipment.
“It would be nonsensical to expect data centre operators and their customers to make long-term commitments to unviable projects that may not deliver electrons,” she said. “That would neither support the data centre nor add energy to the grid.”
American tech giants are racing ahead with mammoth local investments. Amazon is investing $20 billion in Australian AI infrastructure, Microsoft $25 billion, and OpenAI has partnered with NextDC on a proposed 650 MW “AI factory” at Eastern Creek in Sydney. Anthropic, maker of the Claude chatbot, will open a Sydney office this year.
Climate Council infrastructure expert Janice Lee urged caution on the headline investment figures governments were fond of announcing. “They might sound good, but we really need to know what’s written in the fine print,” she said, pointing to the sector’s reliance on imported equipment and its small ongoing jobs footprint.
The choices made now, the report concludes, will determine whether the industry and its global customers “act as partners in Australia’s climate goals, or become a reason they’re derailed”.
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David Swan is the technology editor for The Age and The Sydney Morning Herald. He was previously technology editor for The Australian newspaper.Connect via X or email.
Nick Toscano is a business reporter for The Age and Sydney Morning Herald.Connect via X or email.