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

Energy prices are falling but the rise of data centres could push them back up Tue 28 Jul 2026 at 4:44am Consumers should brace for hefty increases in the cost of generating electricity as data centres suck up vast quantities of power faster than new plants can be built, experts say. Amid forecasts that demand for power from data centres could rise five-fold by 2035, analysts say operators will inevitably tap existing supplies before they can develop new capacity. The warning comes ahead of a meeting of state and federal energy ministers today, when they will discuss the implications of the data centre boom on the power system. From roughly 2 per cent of average demand on Australia's main grid at present, "load" from data centres is forecast to rocket to about 10 per cent of consumption in 10 years. Data centres to supply their own power Despite the bullish forecasts, there are doubts about the extent to which the demand will rise. Earlier this month, Prime Minister Anthony Albanese declared that data centres would need to generate as much power as they used, under Labor's plans for the industry. But observers say a lack of detail in the announcement is unlikely to provide clarity for energy project or data centre developers. Dylan McConnell from the University of New South Wales said the "devil is in the detail" and the effects of any obligations would be unknown until that detail was provided. However, Dr McConnell said some things were already becoming clear. For starters, he said it was highly unlikely that a typical renewable energy project could be brought online fast enough to meet the needs of a data centre. Dr McConnell said data centres could be built much more quickly than a wind farm or a solar project, an inconsistency that he believed was unlikely to change. What's more, he said the wait for gas-fired plants was even greater, thanks in large part to rampant demand for turbines from data centres in America. The shortage of turbines has left customers waiting at least three years to get one. "Based on what we've seen so far, data centres are able to come online a lot quicker than the new renewable energy projects," Dr McConnell said. "So that's a mismatch that currently exists." Power demand could skyrocket Data centres are massive, energy-intensive server farms used to power everything from emails and streaming services to cloud computing. Increasingly, they are needed to run and train the large language models that underpin artificial intelligence systems. According to Dr McConnell, the runaway demand for data centres and AI in particular made it imperative for operators to build their facilities as quickly as possible. If they could not develop their own power generation fast enough, they would simply soak up whatever power they could from the market of existing or committed projects. "That will be a key point of contention," he said. "How much of the stuff is actually new and not just taking up existing projects or projects that would have been used elsewhere?" At least in the short-term, Dr McConnell said data centre demand would put upward pressure on wholesale power prices, which make up about 40 per cent of a typical bill. Such a scenario was last year modelled by energy consultancy Baringa. In a report commissioned by the Clean Energy Finance Corporation (CEFC), the government's renewable energy bank, Baringa said data centres were set to unleash a demand shock on the power system. While consumption from server farms was 300 megawatts in 2024–25, this was forecast to increase to as much as 3.2 gigawatts, or 3,200 megawatts, by the middle of next decade. "This represents 8–11 per cent of Australia's projected electricity consumption in 2035 … and up to $135 billion in data centre investment," wrote CEFC boss Ian Learmonth in a foreword to the report. Without extra energy capacity to meet the surge in demand, Baringa said the effects on wholesale prices could be "significant". In New South Wales and Victoria, where growth in data centre capacity was greatest, it said prices could rise 26 per cent and 23 per cent by 2035, respectively. To offset most of this increase, Baringa said an extra 3.2 gigawatts of renewable energy capacity would be required "over and above" the wind and solar already expected to meet other demand. "If the right incentives were in place to enable this additional renewable generation to be built in those timeframes, price rises would be limited to 7 per cent for NSW and 6 per cent for Victoria, with emissions increases eliminated," the firm said. Even if wholesale price increases could be largely mitigated, some experts have spoken of potentially bigger implications for electricity networks. There have been claims that data centres could lower consumer bills by making better use of Australia's networks of poles and wires. This is because the owners of such networks get a guaranteed amount of revenue every year and recover the amount regardless of how much power is transported. Bruce Mountain from the Victoria Energy Policy Centre said the arrangement meant that network costs per customer fell when use of the poles and wires increased. However, he doubted this would happen with data centres, most of which, he said, would be built in Australia's cities far from renewable energy sources. As such, he said the need to transport wind and solar power from far-flung places to the centres of demand would put pressure on the high-voltage transmission grid. "And those transmission lines getting production into the city are kind of full everywhere in the national electricity market," Professor Mountain said. "So you'll need masses of expansion on top of the transition to decarbonisation. "Unless those transmission expansion costs are to be sheeted back to the data centres, I do not expect that they will bring prices down overall. "I think to the contrary; unless they pay for those transmission costs as well, they'll be driving prices up." Just as importantly, Professor Mountain said the way the government framed the energy duty on data centres would have a massive bearing on the question of costs. He said the government could take a relaxed approach under which operators only had to show they had met an average of their demand from wind and solar over a year. In such a scenario, he said other costs such as storage, "firming" and network upgrades would be spread across everybody's bills. Alternatively, Professor Mountain said the government could impose a more onerous test requiring data centres to instantaneously match their demand for power from renewable sources at all times. In this case, he said operators would need to build and fund much more of the capacity themselves. "There are so many degrees of freedom in this," he said. "And under a blank statement like the Prime Minister has given, there can be massively different cost implications for data centres and for customers."