Honing in on data centre demand

Hey Reader, welcome to The Energy's weekly data newsletter. This week we take a closer look at new data centre forecasts and the energy demand scenarios for Sydney vs Melbourne.

A one horse race

As Australia’s most mature data centre market, Sydney is now at the stage where network constraints are preventing new energy connections in inner and Western Sydney.

Ratings agency Moody’s last week said the networks, which usually connect on a “first-come, first-served” basis, were moving toward rationalising power, assessing applicants on criteria such as sponsor track record, program achievability and anchor tenants.

With this kind of supply and demand challenge, are data centre proponents looking elsewhere?

Not yet, according to Oxford Economics Australia’s new data centre energy demand report, which was informed with the latest connection request data.

The forecasts in it will inform the Australian Energy Market Operator’s upcoming Electricity Statement of Opportunities and Integrated System Plan, and they show Sydney continuing to dominate for some time.

Data energy consumption, sub-region, Step Change.
Source: Oxford Economics Australia based on AEMO data

With its proximity to its clients (be they end users of cloud technologies or corporate customers) as well as other data centres to allow workload shifting, Sydney has big pulling power, and this plays out in the forecasts for data centre energy consumption in NSW. Aside from Melbourne, the rest of Australia barely gets a look in.

Data centres in Sydney already consume 4% of NSW’s grid-supplied electricity. By FY30, this is expected to nearly triple to 11% and reach 18% by FY50, when data centres in Sydney are expected to consume 17.2 TWh of energy. So for now, data centre energy use is a bigger issue for NSW to manage than any other state.

Sydney data centre energy consumption, Step Change scenario.
Source: Oxford Economics Australia based on AEMO data

Expert view

"From a grid perspective, Sydney remains the preferred location, with Melbourne positioned to capture overflow. While Melbourne has a large volume of connection activity, most projects will only proceed if demand materialises, meaning Sydney’s dominance will persist in the near term. This balance could shift if demand accelerates and Sydney’s longer connection timelines push development towards Melbourne or if changes to local planning or regulatory settings, as seen in Macquarie Park, shifts market sentiment and development activity. In the meantime, Sydney’s more mature pipeline of committed projects will continue to underpin growth.

At the moment the industry is consolidating a bit, after a period of really rampant activity, waiting to see how quickly demand will ramp up. There’s plenty of capacity in existing projects as well as projects waiting in the wings to soak it up.”

Alex Hooper
Head of Climate and Energy Economics, Oxford Economics Australia

Existing, committed & anticipated project consumption, Sydney & Melbourne.
Source: Oxford Economics Australia based on AEMO data

Melbourne could muscle in

Current data centre energy consumption in Melbourne is 0.8 TWh, representing 2% of Victoria’s grid-supplied energy. Under the Step Change scenario, Melbourne grows to 8% by FY30 and 19% by FY50.

There are a couple of factors at play that make Melbourne interesting, and as Oxford Economics puts it,

Currently, less than 2% of data centre consumption is connected to the transmission network, but Melbourne has a significant pipeline of large developments planning to do so representing a greater proportion of new demand.

Hyperscalers typically require a connection to the high-voltage transmission network because they need to progressively scale their electricity consumption over time, whereas edge data centres are more content with connecting to the lower-voltage electricity distribution network.

Data centre energy consumption by network connection, Step Change.
Source: Oxford Economics Australia based on AEMO data

So Melbourne’s data centre future could very much depend on to what extent hyperscalers see Australia as an attractive choice. And if demand is higher than expected, Melbourne is well placed to absorb it.