Originally published by Perry Williams of The Australian.
14.05.2026
The Business Council of Australia has pushed back against rules forcing data centres to power their operations with new renewable energy sources, saying gas must be part of the energy mix while warning that technology mandates could lead to higher costs and infrastructure bottlenecks.
Energy ministers said last week that data centres must invest in new green energy projects to power the booming sector, sparking concern about whether Australia’s electricity grid has sufficient capacity to deliver on the sprawling pipeline of facilities.
NSW has $100bn of data centre projects under consideration but is grappling with the puzzle of how to ensure enough energy supplies are available while also keeping the state on track with tough 2030 and 2035 emission reduction targets.
The BCA has demanded a technology-neutral approach to energy, and called for incentives rather than mandates to encourage renewable energy zone development only when it was commercially viable.
“While data centres are primarily seeking renewable generation and battery storage, flexibility will be required, including integration of gas generation. This approach also allows a greater potential for data centres to contribute to the stability of the grid, in the same way that gas is also required to stabilise an increasingly renewables-based network,” the business group said in a submission.
“Data centres are all different and each will have specific requirements. Technology mandates can quickly become obsolete and should be avoided. If government sets restrictive requirements, the result will be additional costs, overbuilding of infrastructure in the wrong places, and projects failing to proceed because the technical specifications are not feasible.”
This week’s federal budget shows Australia is betting on a bulging pipeline of data centre projects and renewable energy developments to carry business investment as the Middle East conflict stokes fear of a sustained hit to the economy.
Energy Minister Chris Bowen and Industry Minister Tim Ayres laid out expectations for data centres in March, with operators required to underwrite new renewable power supply and pay their full share of new grid connectivity so costs are not passed to consumers or businesses.
States, with the exception of Queensland, then approved the plan at an energy ministers meeting last Friday, while the national rule-maker is also drafting new grid rules for industry.
Most large data centres rely on power electronics similar to those used in solar panel and battery systems. During grid faults, such as voltage dips, they can rapidly reduce demand or disconnect entirely. If multiple facilities react at the same time, the sudden loss of demand can destabilise the power system and potentially trigger cascading outages.
The body representing large electricity retailers and generators told Infrastructure NSW that building onsite renewable generation was considerably less efficient than grid-connected investment and invited the risks of inefficient builds and stranded assets.
“This is especially important here where there is concern that the data centre bubble will eventually burst (to some extent),” the Australian Energy Council said.
“If that does happen, and an approach of onsite generation has been taken, then that generation may not be easily utilised elsewhere compared to if it was grid connected.”
AGL Energy last week cautioned that a surge in electricity demand from data centres could outstrip official forecasts, intensifying pressure on an already finely balanced power grid and sharpening the need for new investment in firming capacity.
The Australian Energy Market Operator forecasts that energy consumption from data centres will double from 5 per cent of NSW’s grid-supplied energy in 2026 to 11 per cent by 2030.
“Without a corresponding increase in energy generation, this increase in demand would place upward pressure on wholesale electricity prices,” the NSW government said in its consultation paper.
The Australian Energy Council added that it was concerned about the issue of “phantom demand” where the expected draw of data centres on the system was calculated based on the number of network connection requests.
NSW is planning a substantial expansion of its electricity transmission network to connect renewable energy zones and replace ageing coal-fired generation.
The state has carved out five zones across the state – Central-West Orana, New England, South West, Hunter-Central Coast and Illawarra.
While the renewable areas could form part of a solution for the data centre industry, the BCA said there was also the risk not enough supply would be available given competing demands and broader cost and timeline snags affecting the rollout of green energy.
“The location of data centres in those regions will require careful planning and not all locations will be suitable. Strong demand for renewable energy zone access rights and grid connections may limit the practical availability of capacity for new projects, despite the positive intent of these schemes,” the BCA said.
