Data centre connection queue adds $40 billion to Australian power bills

A new analysis by RenewEconomy indicates that connecting 5 GW of data centres to the grid without corresponding new generation could add $40 billion to Australian power bills. The report projects this cost increase across Queensland, New South Wales, Victoria, and South Australia between 2029 and 2035.

Of the total $40 billion cost, $37 billion is estimated to be borne by consumers. This portion is attributed to higher usage of gas-fired power stations to meet the increased load.

The Cost of Delay

A joint analysis by CEFC and Baringa projects that NSW wholesale power prices will be 26% higher in 2035 if no new supply is added. In contrast, introducing renewables and storage into the mix reduces that price increase to just 3% for the same year.

Green Energy Markets estimates that constructing a new coal-fired power station solely to serve a single data centre would cost between $15 billion and $20 billion.

Grid Constraints and Demand

• AEMO reports 17 data centre projects, totaling 9 GW of capacity, in the connection queue as of June.
• Only 5 data centre projects, representing 1.4 GW, are currently being implemented.
• The Carbon Zero Initiative notes that data centres typically reserve twice the capacity they actually use.
• Transgrid states there is no room left for new data centre connections on the Western Sydney grid.

Political Response and Legislation

SEC chief David McElrea stated that Australians suffering through a cost-of-living crisis can’t be expected to foot the bill for these infrastructure demands. In response, Industry Minister Tim Ayres has announced legislation designed to ensure that such investments do not push up electricity prices. The proposed measures also aim to mandate that data centres procure new renewable generation, directly linking large-scale load growth to the addition of clean supply rather than relying on existing grid capacity.

Prime Minister Anthony Albanese has also weighed in on the regulatory framework, initially promising a "Bring Your Own Renewables" mandate. However, the Prime Minister later indicated a shift in policy direction by promising carve-outs for gas, suggesting that the final legislative package may allow for some fossil fuel-based supply to meet data centre needs.

Industry Fallout and Specific Project Exclusions

The SEC report, titled $40 billion hike, explicitly excludes massive projects such as the 2.16 GW Zerra facility in Queensland and Quinbrook’s 800 MW Supernode from its 5 GW "credible stress test scenario." Meanwhile, grid capacity constraints have triggered significant corporate repercussions in Melbourne, where NextDC’s delays in securing capacity for its M3 data centre in Footscray resulted in the departure of chairman Douglas Flynn and forced CEO Craig Scroggie to forfeit millions of dollars in future bonuses. Queensland Premier David Crisafulli has explicitly stated his intention to build a new coal-fired generator to power the Western Downs region.

What to watch

Queensland faces the most immediate financial exposure as state plans for new gas and coal power stations intersect with the data centre queue.

Regulatory uncertainty also surrounds the implementation timeline. While Industry Minister Tim Ayres has announced legislation to prevent data centre costs from inflating household bills, the specific details and the exact timing for its introduction, described as "shortly," have not been finalized. This ambiguity complicates planning for developers and investors who are waiting for clear rules on how load growth must be matched by new clean supply.

A key technical development to monitor is the Australian Energy Market Commission’s recommendation for a "Build first, catch up later" approach for data centres. This framework would alter the standard connection process, potentially allowing projects to commence construction before full grid compliance is achieved. How regulators balance this accelerated build strategy against the existing grid constraints in regions like Western Sydney will determine whether the current backlog can be cleared without further straining wholesale prices.