The Business Council of Australia Opposes Renewable-Only Rules for Data Centres
The Business Council of Australia (BCA) has raised concerns over proposed rules that would require data centres to power their operations exclusively with renewable energy sources. The group argues that gas should remain a part of the energy mix, warning that strict mandates could lead to increased costs and infrastructure challenges.
Energy ministers recently announced that data centres must invest in new green energy projects to support the rapidly growing sector. This decision has sparked worries about whether Australia’s electricity grid can meet the demands of the expanding number of data centre facilities.
New South Wales (NSW) is considering $100 billion worth of data centre projects, but the state is facing the challenge of ensuring sufficient energy supplies while also meeting its 2030 and 2035 emission reduction targets. The BCA has called for a technology-neutral approach to energy, suggesting that incentives, rather than mandates, should be used to encourage the development of renewable energy zones when it is 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 stated 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.”
Federal Budget Highlights Data Centre Growth
The recent federal budget highlights Australia's reliance on a growing pipeline of data centre projects and renewable energy developments to sustain business investment amid fears of economic disruption due to the Middle East conflict.
Energy Minister Chris Bowen and Industry Minister Tim Ayres outlined expectations for data centres in March, requiring operators to underwrite new renewable power supply and cover the full cost of new grid connectivity so that these expenses are not passed on to consumers or businesses.
At an energy ministers’ meeting earlier this month, states (except Queensland) approved the plan, and the national rule-maker is also working on new grid rules for industry.
Energy Demands and Grid Stability
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 has warned that a surge in electricity demand from data centres could exceed official forecasts, intensifying pressure on an already finely balanced power grid and increasing the need for new investment in firming capacity.
Future Expansion and Challenges
The Australian Energy Market Operator forecasts that energy consumption from data centres will double from 5% of NSW’s grid-supplied energy in 2026 to 11% 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.
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