Explosive growth in Melbourne's data centers is forcing the city planning department to adjust policy.

Victoria's energy planning authority is rewriting long-term electricity forecasts to respond to an unprecedented boom in energy-intensive data centers, while preparing a new 25-year strategic plan for the state's electricity grid.

VicGrid's draft guidelines for the 2027 Victoria Transmission Plan show that the state will for the first time explicitly incorporate modeling of data center growth in its forecasts, which will guide investment in the state's electricity system over the next thirty years.

Over the past 12 months, private companies and individuals have invested nearly $300 billion in New South Wales and Victoria for new buildings, equipment, machinery, and residential properties.

Planners have also warned that Victoria's transition to renewable energy may face multi-year delays due to declining community support, critical infrastructure bottlenecks, and lack of coordination in data center growth. Models show a scenario in which the state would have to rely heavily on natural gas to maintain electricity supply.

Unlike the 2025 plan, the 2027 blueprint will span 25 years. Victoria is preparing to close its final coal-fired power station in 2035, while facing increasing uncertainty about how quickly the rate of electricity demand growth will accelerate.

The draft plan developed by Victoria's government agency VicGrid states that electricity demand forecasts must be updated to reflect data center developments and adapt to the rapidly evolving energy market.

"VicGrid will develop its own forecasts for Victoria's data center needs based on AEMO forecasts, connection consultation data, and other sources to ensure that the VTP design incorporates the latest information," the guidelines state.

This shift comes as Melbourne accelerates to become the nation's fastest-growing digital infrastructure market, which could directly conflict with the state's pressing energy deadlines.

The Allen government has committed to actively attracting major technology companies to the state to build these power-hungry and water-intensive facilities, relying on the resulting construction boom to drive state economic growth.

Over the next 12 months, the agency will develop new electricity demand forecasts and test a series of scenarios to determine what generation, storage, and transmission infrastructure is needed to maintain system reliability.

The draft guidelines consider three core scenarios for Victoria's energy future. The first scenario assumes the state's energy transition proceeds essentially as planned, with renewable energy, storage, and offshore wind targets achieved while electricity demand grows steadily.

The second scenario considers a faster transition, including higher electricity demand and stronger growth in data centers.

The third scenario explores a more challenging path: delays in major energy projects combined with uncoordinated growth in data center electricity demand concentrated in the Melbourne metropolitan area.

Under this scenario, major transmission line projects, renewable energy targets, and offshore wind rollout would all be delayed by two years. Should this occur, the state would face "intensified natural gas supply and capacity challenges" to maintain electricity supply.

The planning process will also test whether Victoria's recently announced renewable energy zones are sufficient to meet the state's long-term energy needs.

The Allen government formally announced this month five renewable energy zones located in regional Victoria and along the Gippsland coast to support offshore wind projects, with a total coverage area of approximately 1.8 million hectares.

VicGrid Chief Executive Officer Alistair Park said he welcomes these five zones, which will improve coordination of solar, wind, and battery projects and reduce the need for unnecessary transmission infrastructure.

He said: "Victoria's coal-fired power stations will close within the next 10 years, requiring substantial new renewable energy development to ensure we can meet growing electricity demand."

The Australian Energy Market Operator (AEMO) has a pipeline of long-term connection requests for Victoria totaling 18 gigawatts—double the state's current peak demand—although how many projects will ultimately be implemented remains highly uncertain.

The operator's latest National Electricity Market quarterly report states that 1.5 gigawatts of data center capacity is in the application stage, with another 0.7 gigawatts approved or under construction.

The prospect of expanding renewable energy development may intensify tensions in regional Victoria, where new high-voltage overhead transmission lines have become a major focus of community opposition. Transmission lines are the infrastructure needed to connect geographically dispersed renewable energy zones to major cities.

Expanding transmission construction has become a political hot spot ahead of the November state election.

The opposition Coalition party has promised that if elected it will review Victoria's transmission plan, arguing that more generation projects should be located closer to areas of concentrated demand near Melbourne.

Opposition energy spokesman David Davis said that rooftop solar and battery storage on commercial and industrial buildings could reduce the need for large transmission projects in regional Victoria.

"We will support these projects, which will minimize land use conflicts and deliver clean power where it is needed," he said.

The Coalition has also promised to pause some controversial transmission projects, including the VNI West project, while abolishing laws that grant planners the power to fast-track land acquisition. This comes after years of sustained opposition from landowners and agricultural communities to major transmission projects.

Against the backdrop of surging support in Victoria, the One Nation party has launched attacks on transmission rollout plans, pledging to stop building new transmission lines for renewable energy projects and claiming farmers are bearing the burden of the "net zero" transition.

The VicGrid report acknowledges the risk of declining community support for renewable energy infrastructure, with the guidelines warning that changing levels of "social license" could affect the implementation timeline and progression of new energy and transmission projects.

A spokesperson for Energy Minister Lily D'Ambrosio said the government is working with federal authorities to ensure data centers do not jeopardize grid stability and is investing in renewable energy generation to prevent households and businesses facing additional costs.

"The plan to delay transmission would increase electricity costs by $1,700 annually and expose Victorian households to blackout risk," she said.

"Only Labor can deliver the renewable energy projects needed to maintain electricity supply and keep electricity prices the lowest in the country."