AI datacentres to strain Australia’s energy supply, spike prices without change, expert says

<span>Evening peak demand should send wholesale power prices as much as 70% higher by 2030.</span><span>Photograph: Jono Searle/AAP</span>
Evening peak demand should send wholesale power prices as much as 70% higher by 2030.Photograph: Jono Searle/AAP

Soaring electricity demand from datacentres could strain supplies and contribute to much higher prices unless tech firms agree to act like aluminium smelters that can power up or down to support the grid, an energy analyst says.

The demand, fuelled in part by the growth of energy-hungry artificial intelligence services, could require between 3.3 and 5 gigawatts of additional capacity by 2030, or about 15% of total load, according to Tom Allen, an analyst with investment bank UBS.

“We think that current government forecasts are significantly underestimating the load growth in demand,” Allen said.

Datacentres now account for almost a quarter of large industrial power demand in Australia. UBS forecasts that load will increase by 16% a year out to 2030.

Evening peak demand should send wholesale power prices as much as 70% higher by 2030. Average prices between 3.30pm and 8.30pm have averaged $312 per megawatt-hour so far this year in the national energy market, and are projected to reach $525/MWh by the end of the decade, UBS estimates.

The Australian Energy Market Operator had so far largely missed the rise of datacentre demand in its forecasts, including in last month’s release of its biennial integrated system plan (ISP). The next iteration of the ISP, though, “will do a better job of addressing this emerging and quite significant customer load,” Allen predicted.

Australia’s energy sector is facing challenges on multiple fronts as authorities try to manage the exit of coal-fired power plants and the rise of relatively low-cost renewable energy sources such as solar and wind.

Gas shortfalls are an increasing possibility in southern states, such as Victoria, even as the nation exports most of its gas output. The need for more storage has also been demonstrated lately as calm conditions have cut wind power output and lifted coal burning.

Electricity demand is also beginning to increase again in part because of the spread of electric vehicles but also datacentre expansions. A report by the International Energy Agency earlier this year predicted such centres consumed 460 terawatt-hours of power in 2022, a load that could more than double to 1000TWh by 2026.

Dylan McConnell, an energy expert from the University of NSW, said the prospect of rising demand from datacentres was a “bit concerning and surprising” and hadn’t been fully captured by traditional forecasts.

McConnell said one presentation given last year estimated datacentre load in Sydney alone was about 724 megawatts, with about 200MW worth of load under construction and a further 1 gigawatts in various states of planning.

“If you add all that up, it’s potentially two Tomagos worth of electricity demand,” he said, referring to an aluminium smelter near Newcastle, NSW’s biggest power user.

Allen said datacentres may also provide benefits to the grid, including basic demand that runs 24/7. On the other hand, they could shut down during periods of peak load in a process known as demand response and get paid for it.

“I think of datacentres as the new aluminium smelters,” he said. However, so far, datacentres UBS has engaged with “are less interested in being a demand management customer” that would be paid to lower their load to support the grid.

An Aemo spokesperson said datacentres were “a key growth opportunity for electricity demand”, and their expansion was “embedded within our forecasting approach”. The recent ISP, for instance, anticipated such growth in a sensitivity analysis.