Australia’s energy minister Chris Bowen has asked the Australian Energy Market Commission (AEMC) to consider a rule change that would require qualifying data centres to back their electricity consumption with firmed energy, as the government seeks to limit the impact of rapidly growing digital infrastructure demand on power prices and grid reliability.
The rule change request, received by the AEMC on 20 October, proposes mandatory contracting arrangements supported by new generation, storage and dependable demand flexibility in the same electricity market region as each data centre. The commission has not yet initiated the process; a consultation paper will follow once it does.
The proposal is intended to ensure that the cost and reliability risks associated with new data centre demand are not passed on to other electricity consumers. It forms part of a wider package of reforms aimed at making large data centre operators account for the energy and network infrastructure needed to support their facilities.
The request cites the Australian Energy Market Operator’s 2026 Electricity Statement of Opportunities, which forecasts data centre consumption reaching around 15TWh annually by 2029-30, or 7.8 percent of operational electricity consumption in the National Electricity Market (NEM). By 2035-36, consumption is projected to reach approximately 34TWh, or 13 percent.
The government argues that data centre demand could grow faster than new generation, storage and network capacity can be delivered, particularly as coal-fired power stations retire and variable renewable generation takes a greater share of the electricity mix.
Under the proposed obligation, data centres would have to demonstrate that their contracting portfolios provide sufficient firm capacity to match the timing, duration and scale of their electricity demand. Potentially eligible arrangements include power purchase agreements, cap contracts, tolling agreements, storage and dependable demand response.
Defined size
The detailed requirements remain open for consideration. The request raises for consideration whether obligations should apply above a defined size threshold, whether larger facilities should face higher requirements, and whether the Australian Energy Regulator (AER) should assess a data centre’s full 24-hour demand profile rather than focusing solely on peak periods.
A central element of the proposal is a requirement for supporting capacity to come from new investment. The request suggests a high default level of newness, potentially requiring all eligible firming resources to be new, although ministers could be given scope to vary the requirement between jurisdictions. Eligible technologies and the treatment of high-emissions generation would also need to be determined.
Compliance could be assessed before a facility connects to the grid and at scheduled reviews or following material increases in demand. The AER could assess contract portfolios and require independent audits. Financial penalties are proposed for non-compliance, with the AEMC also asked to consider whether facilities could be required to reduce their electricity consumption until they meet their obligations.
Contracting arrangements
The proposal builds on advice from the AEMC, which informed the reform package energy ministers (excluding Queensland and the Northern Territory) agreed on 28 July. The AEMC’s recommendation 2 was that new data centres be backed by sufficient firm contracting arrangements.
The request was lodged alongside a second rule change request on connection agreements for large energy users. It also sits alongside separate rule changes on how network augmentation costs are recovered, including costs caused or accelerated by data centres and other large loads, and on the operational visibility of large inverter-based loads.
The contracting obligation will need to be coordinated with the government’s renewable electricity obligation for data centres, which is intended to link their consumption to new renewable generation. The request identifies the risk of duplicated requirements, administrative burden and additional costs if the two frameworks are not aligned.
The commission’s assessment will need to weigh the potential benefits for system reliability, wholesale prices and investment in new capacity against the costs of compliance, the availability of firming contracts and the risk of requiring more capacity than facilities actually use as they ramp up. No final requirements or implementation timetable have been set.