Who pays for the grid as data centres expand?

Australia’s energy transition is colliding with the rapid growth of AI, cloud computing and digital infrastructure.

As electricity demand forecasts rise, data centres have become both an economic opportunity and a source of controversy. At the centre of the debate is a simple question: who should pay for the transmission and network infrastructure needed to support them? 

Speaking at Australian Energy Week, Transgrid CEO Brett Redman said new demand could benefit consumers by spreading fixed network costs across a larger customer base. However, households should not fund infrastructure built specifically for major new users. 

"We're seeing unprecedented growth in connection applications, including… twice New South Wales' current demand within a 12 kilometre radius of a single Western Sydney substation," Redman said.

Data centre demand across New South Wales and the ACT could rise from three terawatt hours to 27 terawatt hours within a decade, he added. 

"Done well, new demand can be good for consumers because it spreads fixed costs across a larger base and drives down average network costs for everyone," he said. "When infrastructure is required specifically for large new loads, these costs should sit with the proponents creating that demand, not socialised across consumers."

Growth should pay for growth 

That principle is now moving onto the national policy agenda.

In a speech on July 15, Prime Minister Anthony Albanese announced plans for mandatory Australian Standards for AI, including a legal obligation for the next generation of large-scale data centres to underwrite new power supply. 

“We will create a legal obligation for the next generation of large-scale data centres to underwrite new power supply,” Albanese said. “To pay their full share of grid connection, so no costs are passed on to homes or businesses. And to put at least as much energy into our grid as they take out of it. To be net-generators, not net-users.”

The proposed framework builds on voluntary expectations released in March, covering energy, water, skills, jobs, innovation and Australia’s national interest.

Data centre operators, however, argue that large customers already pay substantial connection and upgrade costs.

Sabooh Whitelaw, Associate Vice President of Utility and Energy at AirTrunk, told Australian Energy Week: "Our view is simple: growth should pay for growth”.

She said the principle was already embedded in Australia’s connection framework, but argued the debate should move beyond simply measuring how much electricity data centres consume and instead focus on how new demand can support a more efficient energy system.

"Large customers in Australia are often required to make substantial investments in connection infrastructure and network upgrades. In practice, that means data centres already pay for significant elements of the infrastructure required to support their growth”.

"The better question is: how do we integrate new demand into the system in a way that strengthens the grid, accelerates renewable investment, improves utilisation of existing infrastructure and delivers better outcomes for consumers?"

Whitelaw argued that large users could also provide long-term demand certainty, support renewable projects through power purchase agreements and invest in storage. 

Can data centres lower bills? 

NextDC Head of Energy Shane Kumar challenged the common perception that data centres simply add costs to the system.

"I'm going to start off by saying something controversial," Kumar said. "Data centres actually help to drive down power bills."

Kumar argued that large cloud and AI facilities generally have steady demand profiles. By consuming electricity when networks are less heavily used, they can improve utilisation and absorb more solar generation. 

"What they're doing is they're utilising the grid most of the time, where we're not. They're soaking up the solar, they're enabling more solar penetration into the grid," he said.

The discussion also pointed to a broader role for data centres as active grid participants. Whitelaw highlighted AirTrunk’s plans for large-scale battery storage at its Sydney campus and said the future grid would need customers able to provide storage, flexibility and responsive demand. 

The debate ultimately revealed more agreement than disagreement. Network operators and data centre representatives accepted that major new loads should contribute to the infrastructure they require. The divide is over how their wider value should be measured.
Australia’s proposed standards would move the issue beyond a case-by-case connection debate.

The challenge now is to ensure rapid digital growth pays its way while helping strengthen the electricity system, support new renewable generation and protect households from additional costs.