“The range of scenarios for AI development is very broad. We have to be ready for the potential that data centre development is exactly as large and resource-intensive as currently appears to be the case,” said Willox.
“Today we are not ready. And the consequences of remaining unready could be very severe. There is still time to act. It will not last long.”
Australia’s modern electricity grid was built on a fleet of large coal-fired power generators, many of which are becoming increasingly unreliable as they reach the end of their working lives.
The Albanese government has a plan to replace them almost entirely with renewable power such as wind and solar, which are considered to be the cheapest form of new generation; however, the building of new power projects is moving much more slowly than anticipated.
The government last month launched a national artificial intelligence plan, which is designed to turbocharge investment in the development of AI by avoiding heavy-handed regulation. Australia attracted $10 billion in data centre investment in 2024.
Global AI giant OpenAI announced last month that it would become a major customer of NextDC’s $7 billion, 650-megawatt data centre site in Sydney’s Eastern Creek. The NSW government has also approved a 504-megawatt data centre in nearby Marsden Park.
But AI Group said that without an “urgent and immense” increase in new power supply to meet data centre demand over the next few years, coal-fired power stations would not be able to retire as planned, while price-sensitive businesses such as metals producers could be bid out of the market by less price-sensitive data centres.
“The electricity system is not currently ready for this rate of demand growth,” AI Group said.
“While there is substantial uncertainty over what may happen, it has become imperative to prepare for extreme scenarios.
“Unusual and urgent measures will be required to protect existing energy users, particularly since the rapid pace of change greatly exceeds the speed of traditional policy processes.”
The letter to the energy ministers, which was sent in advance of the most recent state and federal energy ministers meeting in December, said the government should task the market operator with producing and publishing consolidated figures on data centre connection requests, “including level of confidence they will go ahead”.
Data centres should also be required to bring their own new electricity supply sources to cover their expected power needs over at least the first five years of operations, and the facilities should be made to adjust their power load to limit their contribution to daily demand peaks, said AI Group.
Data Centres Australia chief executive Belinda Dennett said applications for energy connections were a poor demand forecasting tool, and operators had already offset 70 per cent of their energy use with renewable sources.
“Multiple applications for the same workload will exist in the connections system, with independent modelling demonstrating six out of seven applications will not proceed,” said Dennett.
“Data centre operators in Australia are already funding their own connections and investing in energy infrastructure that not only supports their own operations but provides excess capacity to other industries and households.”
Data centres require huge amounts of power and water to operate and cool the large computer servers housed inside them.
Their explosive growth forecasts over the past year have created a policy headache for governments, planning authorities and energy and water utilities.
In December, water authorities said stricter rules and water efficiency standards were needed after some proposed individual data centres lodged inquiries for daily water volumes equivalent to that used by 80,000 homes.
Infrastructure NSW is reviewing how the state can supply the energy and water needs of the facilities.
A spokesperson for Climate Change and Energy Minister Chris Bowen said data centre energy use issues were a top priority for the government.
“As part of the national AI plan, a set of national data centre principles will set clear expectations for sustainability, including bringing new renewable energy online and adopting efficient cooling technologies,” the spokesperson said.
Federal and state governments agreed to a raft of new proposals at the most recent energy ministers meeting in December. These included ensuring data centres met all of their own network upgrade costs, reforming grid connections and improving the market operator’s visibility of data centre energy use.
