Datacentre power demand in Australia could triple in five years and is forecast to exceed by 2030 the energy used by electric vehicles.

Datacentres now draw about 2% of electricity from the National Grid, about 4 terawatt hours of power. The Australian Energy Market Operator (Aemo) expects that share to rise rapidly – growing 25% year-on-year – to reach 12TWh, or 6% of grid demand, by 2030, and 12% by 2050.

Rapid growth of the industry will drive “substantial increases in electricity consumption, for Sydney and Melbourne, in particular”, Aemo forecasts.

In New South Wales and Victoria, where most are located, datacentres could comprise 11% and 8% of each state’s electricity demand, respectively, by 2030.

Technology companies including OpenAI and SunCable are pushing for Australia to become a hub for data processing and storage. Last month the Victorian state government announced a “$5.5m investment to become Australia’s datacentre capital”.

But with 260 centres operating nationally, and dozens more in the offing, experts are flagging concerns about what the industry’s unfettered growth could mean for the energy transition and climate targets.

Energy use equivalent to 100,000 households

Banks of servers running 24/7 in a confined space generate massive amounts of heat and require electricity to run and cool them.

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Datacentre demand globally is growing four times faster than all other sectors, according to the International Energy Agency. Centres are multiplying and are increasing in size, with hyperscale facilities becoming more common.

According to the IEA: “A hyperscale, AI-focused datacentre can have a capacity of 100MW or more, consuming as much electricity annually as 100,000 households.”

The consumption of electricity and water is largely related to cooling, as servers, like other computing devices, convert electrical energy into heat, according to Prof Michael Brear, a professor of mechanical engineering and director of the Net Zero Australia project at the University of Melbourne.

“When you have a very large number of computers in a confined space, you need to air condition the space to maintain these devices at a safe and efficient working temperature,” he says.

Most digital infrastructure is cooled using air conditioning or water.

Ketan Joshi, an Oslo-based climate analyst associated with the Australia Institute, says many technology companies are now reporting accelerating power consumption year-on-year. The intensity of energy use is also rising against multiple metrics – energy per active user, per unit of revenue – compared with five years ago, he says.

“They’re not using more energy to serve more people or to make more money,” he says. “The question that everybody should be asking is why are you consuming more energy?”

In the absence of concrete data, Joshi says the most reasonable assumption is that the uptick in demand is being fuelled by the widespread adoption of energy-hungry generative AI systems.

‘Running harder to stay in the same spot’

Joshi, who has been tracking the issue globally, says datacentres are large, inflexible loads on the power grid which have two clear impacts: they increase reliance on coal and gas generation, and they siphon resources away from the energy transition.

Datacentre companies often claim they run on clean energy by investing in solar or windfarms, but Joshi says there is often a mismatch between their near-constant draw on the grid and the generation profile of renewable energy.

“What is the net effect on the power grid?” he asks. “Well, sometimes you’re going to have a surplus of energy, and sometimes you’re going to have not enough.

“So, even though on paper it all kind of works out, there are some times when that datacentre is actually helping fossil fuels to be dispatched.”

And, instead of the new renewables eating into the share of coal and gas, these generators are serving the growing needs of datacentres, Joshi says: “It’s like running harder just to stay in the same spot because the treadmill is getting quicker.”

The electricity demands are so great that some companies have paid to restart mothballed US nuclear power stations, and demand for gas turbines has increased. Some developers in Australia have proposed installing new gas generators to service their needs.

According to Aemo’s forecasts, by 2035 datacentres could consume 21.4TWh, an amount just shy of the annual consumption of Australia’s four aluminium smelters.

It is still early days in the uptake of AI, Brear says, and at this stage the outlook is uncertain, reflected in Aemo’s scenarios for energy consumption in 2035 ranging from 12TWh to 24TWh. “It may not be that these grow as large as some people are predicting,” he says.

In its national AI plan, released on Tuesday, the federal government acknowledged the need to expand new energy and cooling technologies for AI systems. The minister for industry, Tim Ayres, said the government would set out data centre principles in early 2026, pledging that “key co-requisites for data centre investment will include additional investment in renewable energy generation and water sustainability”.

‘An undeniable impact’ on power prices

Dr Dylan McConnell, an energy systems researcher at the University of New South Wales, says renewable energy is growing in Australia but not yet at the rate required to meet renewable energy and emissions targets. Datacentre growth would add to the challenge.

“If we are in a situation where demand is growing much faster than anticipated and renewables don’t keep up, then actually what we end up doing is just powering that new demand and not displacing coal,” he says.

Unlike electric vehicles, which create additional demands on the grid while reducing petrol and diesel consumption, datacentres will not reduce fossil fuel use in other parts of the economy, according to McConnell.

“If this demand eventuates, it will make our emissions objective – and our ability to close coal on schedules that align with the emissions targets – very difficult, if not impossible,” he says.

The Climate Change Authority, in its advice on climate targets, says: “Datacentres will also be built at increasingly large scales and capacity, compounding pressure on regional power sources and placing additional pressure on the renewables buildout.”

There will be an undeniable impact on the overall cost of energy, which will flow through to power prices, McConnell says.

“You need to build a bigger system to serve this load, and that will mean more expensive resources are used.”