Projections indicate Australian data centers will consume electricity equivalent to all homes in New South Wales and Victoria combined by 2036.

The Australian Energy Market Operator (AEMO) has revised its expectations upward, forecasting that data centres will draw as much power from the electricity grid by 2036 as all households in New South Wales and Victoria consume today. Currently, 165 data centres operate across the National Electricity Market (NEM)—which covers all states and territories except Western Australia and the Northern Territory—consuming approximately 3 per cent of grid-supplied electricity. Even accounting for high project cancellation rates, AEMO now expects energy-hungry data centres to account for 13 per cent of power demand by 2036, equating to 34 terawatt-hours (TWh). This figure closely mirrors the 38 TWh currently consumed by every home in NSW and Victoria.

Just a year ago, AEMO projected that data centres would not reach this consumption level until sometime after 2050. Under its “accelerated transition” scenario, it had estimated data centre usage at roughly 24 TWh by mid-2035. The sharp revision follows a documented surge in development activity over the past 12 months, with the number of known data centres in the pipeline more than doubling from 97 to 225. While uncertainty remains, particularly beyond 2030, the vast majority of this growth is concentrated in NSW and Victoria, with South Australia representing the next-largest share within the NEM.

The federal government has expressed concern that the data centre boom—which promises up to $150 billion in new investment—could strain the grid and drive up power prices without regulatory intervention. At a Business Council dinner this evening, Prime Minister Anthony Albanese will outline proposed energy rules for the sector, with final decisions expected at national cabinet on Wednesday.

“Australia is in a strong position to attract investment in data centres, but maintaining social licence will be essential,” Mr Albanese will say. “That means ensuring energy bills do not rise, water security is maintained, and locations are appropriate.”

To counteract the forecasted surge in demand, the Albanese government plans to implement rules requiring data centres to guarantee new renewable energy supply to cover their consumption. This would mandate power purchase agreements with newly built renewable projects, which would also help developers secure financing—a current bottleneck holding back several renewable initiatives unable to demonstrate customer demand for loans. However, Queensland’s rejection of rules tying data centre construction to new renewables means the federal government will need to legislate to override the state. Specifically, Canberra will introduce “guarantee of origin” laws to enforce the renewables requirement when data centres seek grid connection.

The Coalition has criticised the approach, arguing that linking such a significant economic opportunity to the renewables transition could deter investment in Australia. Alongside the renewables mandate, Wednesday’s agreement will urge states and territories to minimise community impacts by avoiding major developments in “inappropriate locations” near homes, schools, and prime land suitable for housing. Data centres will also be required to adopt more efficient technologies to reduce water consumption and cover their own water infrastructure costs.

Beyond energy and water regulations, Mr Albanese announced that legislation introduced next year will establish conditions for artificial intelligence, covering copyright, security, safety, and skills development under a unified framework within the prime minister’s department.

“We must establish conditions to attract investment in frontier AI training, ensuring AI is developed safely, securely, and in ways that respect copyright and provide control and payment to the creative sector,” Mr Albanese said. “Getting this right can ensure Australia is the infrastructure partner for our region, aided by our status as a Five Eyes Partner. It will advance our national sovereignty.”

While the government hopes to enact these measures swiftly to apply uniformly across all jurisdictions, the Greens have signalled they will not pass the legislation unconditionally. Greens leader Larissa Water stated: “Of course data centres should be using more renewables — but sky-high energy and water usage is just one part of why people are growing increasingly worried about the massive roll-out of AI data centres across our communities. We don’t need to roll out the red carpet for tech bros. The government should put a pause on data centres until we get the rules right.”

Meanwhile, AEMO cautioned that while the grid’s reliability is not yet under threat, it hinges on new generation capacity being delivered “on time” to replace retiring coal plants and meet rising electricity demand.