Australia's fast-growing data centre industry will play a defining role in the nation's clean energy transition, with a new report calling for a big uplift in renewable energy and storage and coordinated policy reform to help manage its energy and emissions footprint.
The CEFC - Baringa report, Getting the balance right: Data centre growth and the energy transition, forecasts that data centres could represent up to 11% of Australia's total electricity consumption by 2035, up from about 1% today.
Data centres are critical infrastructure powering the modern digital economy. With the right policy settings, renewable generation and storage, Australia can position itself as a leader in clean digital infrastructure.Julia Hinwood
CEFC Head of Infrastructure
Driven by artificial intelligence, cloud computing and digital infrastructure demand, the sector is expected to attract between $85 billion to $135 billion in investment and grow capacity fourfold within a decade.
CEFC Head of Infrastructure Julia Hinwood said: "Data centres are critical infrastructure powering the modern digital economy. With the right policy settings, renewable generationand storage, and operational innovation, Australia can position itself as a leader in clean digital infrastructure.
"With this rapid growth comes the potential for adverse impact on the energy grid as well as electricity prices. By investing early in renewable energy and storage capacity to power the sector and implementing appropriate regulatory settings, we can avoid these pitfalls and benefit from a booming new industry."
The report said investors could play a key role in creating 'green data centres' by directing their capital towards projects and companies that prioritised ESG factors. It calls on investors and developers to align with the Australian Sustainable Finance Institute (ASFI), ensuring credible climate-aligned investment prioritised projects that sought better environmental outcomes, such as those powered by 100 per cent renewable energy.
Key findings
- Massive growth trajectory: Data centre capacity is projected to rise from 1.35 GW today to between 4.7 GW and 7.4 GW by 2035, cementing Australia's place among the Asia-Pacific's top data-hosting nations.
- Renewables solution: Adding 3.2 GW of renewable generation and 1.9 GW of battery storage by 2035 to support data centre load would contain price rises and neutralise additional emissions.
- Energy challenge: Without additional new renewable energy and storage, by 2035 data centre growth could lift NSW wholesale power prices by 26% and Victorian prices by 23%, while increasing grid emissions across the NEM by 14% (6 million tonnes of CO2 annually).
- Geographic concentration: About half of all planned capacity is clustered in Sydney, intensifying pressure on Western Sydney's grid infrastructure. Melbourne will host around 25% of national capacity.
- AI acceleration: AI is expected to take up an increasing share of data centrecapacity - up to 84% of new facilities could host AI operations, with 65% built as hyperscale sites, underscoring Australia's importance in regional cloud and computing markets.
- Economic opportunity: AI and automation enabled by data centre infrastructure could contribute up to $600 billion to GDP by 2030.1
Policy coordination critical
The report urges governments to act quickly to ensure this growth is sustainable, calling for a nationally coordinated approach to guide planning, energy policy, and investment certainty.
It outlines four key policy priorities:
- Locational coordination - guiding investment to areas with existing grid capacity and renewable potential.
- Clean energy enablement - incentivising and enabling data centres to procure or underwrite new renewable and firming projects.
- Visibility and transparency - improving data on future electricity demand and project pipelines.
- System security - ensuring large load connections are integrated safely and flexibly with the grid.
Ms Hinwood added: "The report outlines the importance of a coordinated national approach. Policy consistency and early investment signals will be key to unlocking clean energy supply while maintaining data centre competitiveness."
Innovation and investment
The report highlights the vital role of technology and innovation in mitigating impacts and improving efficiency:
- Collocated battery energy storage systems can reduce peak load, increase the flexibility of demand and provide grid services.
- Advanced cooling systems, AI-driven optimisation, and minimum energy-efficiency standards (PUE) will drive performance gains.
"Innovation in efficiency and storage is redefining what data centres can be - not just major consumers of electricity, but active participants in the clean energy system," Ms Hinwood said.
About Baringa
Baringa is a global management consultancy operating across sectors including energy and resources, financial services, and government. We set out to build the world's most trusted consulting firm - creating lasting impact for clients and pioneering a positive, people-first way of working. We work with everyone from ASX names to bright new start-ups. We have hubs in Australia, Asia, Europe, the US and the UK, and we can work all around the world - from a wind farm in Wyoming to a boardroom in Berlin. Find us wherever there's a challenge to be tackled and an impact to be made.
1 Department of Industry, Science and Resources (2024) Developing a National AI Capability Plan.
