New South Wales electricity distributors Ausgrid, Endeavour Energy and Essential Energy have warned that data centre demand could account for as much as 30 percent of the state’s electricity load by 2040, arguing that coordinated planning and designated data centre precincts will be needed to avoid inefficient network investment and rising costs.
Appearing before the NSW Public Accountability and Works Committee’s inquiry into data centres, the three distribution network service providers (DNSPs) said data centres currently represent around four percent of operational load across the state but are expected to grow rapidly over the next 15 years.
Fatima Bazzi, group executive customer at Ausgrid, described the projected increase as unlike anything the sector has experienced before. “Today they account for approximately 4 percent of operational load in New South Wales. By 2040 we predict that to rise to between 17 and 30 percent. That kind of growth in that time frame is unlike anything we have ever seen,” Bazzi told the inquiry.
To put that in concrete terms, Endeavour Energy general manager future grid and asset management Colin Crisafulli said the upper end of that range would equate to roughly 20 terawatt hours of annual consumption – equivalent to the entire demand currently carried by Endeavour Energy’s network, which serves a large residential and industrial customer base, or about 10 percent of national electricity market figures.
The networks argued that, if managed correctly, the additional demand could benefit electricity consumers by improving utilisation of existing infrastructure and spreading network costs across a larger customer base. “Increased demand improves network utilisation. This lowers the share each customer pays and reduces bills for everyone,” Bazzi said.
The evidence comes as governments, regulators and utilities grapple with the impact of rapidly growing AI and cloud infrastructure demand on Australia’s electricity system.
Precinct planning urged
One of the recurring themes throughout the hearing was the need for a more strategic approach to locating data centres. The distributors argued that NSW should identify suitable data centre precincts based on available electricity capacity, water, fibre connectivity and planning considerations, rather than allowing projects to emerge in an ad hoc manner.
Crisafulli said Western Sydney had become one of Australia’s fastest-growing data centre markets, with around 20 facilities already connected to the network representing approximately 900MW of installed capacity.
“If fully utilised, that is the typical demand we see on a network basis daily for 1.2 million homes,” he said.
Crisafulli said Endeavour was developing concepts such as a proposed Western Sydney Energy Hub that would cluster data centre developments around shared infrastructure rather than requiring individual network upgrades for each project. “The hub aims to cluster data centre connections within a precinct, supported by shared enabling infrastructure, rather than potentially duplicating assets customer by customer,” he said.
Bazzi said the current regulatory framework requires networks to assess all connection applications regardless of location, creating significant inefficiencies. She argued that designating a fixed set of hubs across NSW – chosen for their available capacity, fibre and water access – would substantially reduce wasted assessment work and allow networks to plan infrastructure investment years in advance.
“If we were moving into a space where New South Wales decided we’re going to have these six hubs across New South Wales – that’s where there’s available capacity, fibre, water – then it really clears out a lot of the noise,” she said.
The scale of that assessment burden is significant. Bazzi told the inquiry that Ausgrid’s current data centre pipeline stands at 7.5 gigawatts, of which 5.2 gigawatts is still in the planning assessment phase – meaning those connections have not yet been approved and remain subject to review. Ausgrid’s forecast to the Australian Energy Market Operator (AEMO) is approximately 2.2 gigawatts, reflecting only those projects the network considers most likely to proceed.
The networks also pointed out that data centre developers frequently submit multiple connection applications across different networks and locations before deciding where to proceed, complicating demand forecasting and planning.
Causer pays framework
Bazzi highlighted the principle of “causer pays” as a key protection for existing customers. Under this framework, the customer responsible for driving network costs pays for them, and Ausgrid has reinforced its contractual arrangements to ensure data centre operators bear the full cost of any augmentation – including bank guarantees that remain enforceable over the life of the asset, not just during construction.
“In New South Wales, the customer who caused network costs pays for them,” Bazzi said, adding that Ausgrid is also exploring additional mechanisms to strengthen protections for its existing customer base.
AI demand creating uncertainty
While the distributors said they have developed increasingly sophisticated forecasts for traditional cloud data centre growth, they acknowledged that AI workloads remain difficult to predict. Crisafulli said the networks were seeing evidence overseas of hyperscale facilities ramping demand over time, but AI-related projects could accelerate that trend.
“I think the part we are most challenged with at the moment, if we’re being very honest, is the AI and large language model demand,” he said. “We haven’t seen that significantly within our jurisdiction at this point. But I think that’s where we’re seeing probably the requests for that consumption coming in much faster and with a much faster rate of rise.”
He added that current forecasts could ultimately prove conservative. Asked whether demand could exceed current projections, Crisafulli responded: “It’s potentially much bigger.”
The hearing also highlighted growing divergence between network forecasts and those used by AEMO, with distributors acknowledging the difficulty of accurately modelling future data centre demand given multiple connection requests and rapidly changing market conditions. Bazzi said the next 18 months would be telling in determining whether even the more conservative AEMO figures would need to be revised upward.
Regional opportunity
While much of the current activity is concentrated in Sydney and Western Sydney, Essential Energy argued that regional NSW could play a larger role in future data centre development. Chief customer and corporate affairs officer Annie Pearson said the company’s network, which covers 95 percent of NSW geographically, has substantial unused capacity and could benefit from additional large loads.
“It would help enormously because our network is underutilised,” Pearson said. She added that Essential Energy serves roughly four to five customers per kilometre of network – compared with around 45 per kilometre for Ausgrid – underscoring the degree to which the regional network is built for a capacity it rarely uses.
Pearson suggested regional locations could potentially combine available network capacity with renewable generation and storage projects, creating economic opportunities while easing pressure on constrained metropolitan infrastructure.
The distributors also argued that policy settings should reflect the different characteristics of regional and metropolitan networks, warning against one-size-fits-all approaches.