The Australian Energy Market Commission (AEMC) is pressing ahead with new rules for data centre connections and electricity offset requirements, as chair Anna Collyer (above) warned that Australia’s growing appetite for AI infrastructure must not come at the expense of energy consumers.
Speaking at Australian Energy Week in Melbourne, Collyer described data centres as a “lightning rod” for both the energy transition and the rapid growth of AI, arguing that the sector presents a significant economic opportunity provided growth is properly coordinated.
“There is a clear national interest in ensuring more of the data Australians generate can be processed here. And there is a major economic opportunity in attracting that global investment,” she said. “But we can’t pursue that opportunity at the expense of energy customers. Especially when many remain under real cost-of-living pressures.”
Collyer said the AEMC was currently working on two major reforms affecting the sector. The first is a rule change to update technical standards for connecting large loads, including data centres, to the electricity grid.
“We are updating technical standards to connect large loads, including data centres, to the grid. We expect to finalise a rule change later this year,” she said. “The purpose is to support timely connections while protecting system security. And because data centres are not homogenous and pose different levels of risk, the standards will be tiered, giving proponents clearer expectations from the outset.”
The second area of work relates to a request from Energy Ministers for advice on how data centres could offset their electricity demand through renewable generation, storage and demand flexibility measures. “We’ll present that advice next month,” Collyer said.
Learning from overseas markets
Collyer stressed the need for Australia to avoid mistakes seen in overseas markets where data centre growth outpaced planning, network development and regulation. “We have spoken about this with counterparts in North America and Ireland,” she said. “The lesson is not as simple as data centres are the problem. The lesson is that very large loads need to be planned, connected and operated as part of that integrated system.”
The comments echo concerns increasingly being raised by Australian policymakers and network operators as AI-related demand accelerates. Collyer pointed to developments around Lake Tahoe on the California-Nevada border as an example of how large data centre investments can create impacts beyond the jurisdiction in which they are built.
“A rapid expansion of data centres on the Nevada side is placing pressure on a power grid shared with communities in California, threatening electricity supply for thousands of residents who had no say in those developments,” she said.
According to Collyer, the challenge is not preventing data centre growth but ensuring it occurs within a coordinated framework that protects reliability and consumers. “Data centre operators want speed to market. They make the point that they are already investing heavily in renewable energy that will support the wider system,” she said. “But the scale of what’s being proposed has many others rightfully concerned about what happens if that rapid growth is not properly coordinated.”
Industry and regulators converge on common framework
Collyer’s comments come as governments, regulators and industry groups increasingly align around a common set of expectations for data centre development. At Australian Energy Week, AEMO chief executive Daniel Westerman, the AEMC and federal government representatives all highlighted the need for new generation, demand flexibility and greater visibility of large electricity loads as data centre demand rises.
In an analysis of the conference, Certified Strategic founder Winston Su described data centres as a “once-in-a-generation opportunity” for Australia, noting that policymakers are increasingly focused on ensuring growth supports broader energy system objectives rather than creating additional pressures.
The AEMC’s work forms a key part of that framework. According to Su, the commission is expected to finalise its tiered technical standards rule later this year and deliver advice on electricity offsets to Energy Ministers in July. The reforms are likely to play a significant role in shaping how future data centre projects are developed and connected to the grid, particularly as AI infrastructure drives larger and more concentrated electricity demand.
For Collyer, the objective remains balancing economic opportunity with consumer protection. “Data centre development must not leave consumers worse off,” she said. “On the flip side, data centre development could actually lead to power system benefits – but that depends on getting the planning, connection and operating arrangements right.”