Getting the balance right: Australian data centre growth and the energy transition

Australia’s rapidly expanding data centre sector is set to play a pivotal role in the country’s clean energy transition. New analysis by Baringa, for a report commissioned by the Clean Energy Finance Corporation (CEFC), highlights the need for significant increases in renewable energy and storage, alongside coordinated policy reforms, to manage the industry’s growing energy use and emissions.

According to the report, data centres could account for up to 11% of Australia’s electricity consumption by 2035, compared with around 1% today. This surge is being driven by demand for AI, cloud computing and digital infrastructure, with investment projected to reach $85–$135 billion and capacity expected to quadruple within a decade.

Key insights from the report include:

• Rapid growth: Capacity is forecast to rise from 1.35 GW today to between 4.7 GW and 7.4 GW by 2035, positioning Australia among the Asia-Pacific’s leading data-hosting nations.
• Renewable integration: Meeting demand will require an additional 3.2 GW of renewable generation and 1.9 GW of battery storage by 2035 to stabilise prices and offset emissions.
• Energy risk: Without new renewable capacity, data centre growth could push wholesale power prices up by 26% in NSW and 23% in Victoria, while increasing grid emissions by 14% (around 6 million tonnes of CO₂ annually).
• Location hotspots: Around half of planned capacity is concentrated in Sydney, putting pressure on Western Sydney’s grid, while Melbourne is expected to host about 25%.
• AI dominance: Up to 84% of new facilities may support AI workloads, with 65% built as hyperscale sites, reinforcing Australia’s role in regional cloud and computing markets.
• Policy imperative: The report calls for urgent, nationally coordinated action to guide planning, energy policy and investment certainty.

The report also explores how innovation can help reduce impacts and highlights the important role policymakers can play in shaping solutions.

The CEFC is Australia’s specialist climate investor, helping cut emissions in the race towards net zero by 2050. They invest in the latest technologies to generate, store, manage and transmit clean energy.

For more information, contact Anne Bailey or Rebecca Vallance.