VicGrid is considering changes to Australian state Victoria’s transmission pricing framework that would give large electricity users an incentive to reduce or shift flexible consumption during periods of high network demand, potentially creating a new operating consideration for large data centres.
The proposed changes form part of VicGrid’s consultation on the transmission pricing methodology for the 2028-33 regulatory period. The organisation says the changes are intended to allocate costs fairly, improve use of the transmission network and provide clearer signals to transmission customers and investors while keeping costs down for consumers.
Under the proposed framework, large energy users would face a peak-and-off-peak pricing structure for the network’s non-locational and common services charges, instead of the current flat rate. VicGrid’s consultation paper proposes a peak window of 4pm to 9pm, seven days a week (AEST), with all other hours off-peak.
The price differential would be phased in, moving from a 1:1 peak-to-off-peak ratio in the first two years of the regulatory period to 3:1 by the final year, essentially meaning peak-period charges would eventually be three times higher than off-peak charges. VicGrid says the signal is not provided under the current pricing framework.
VicGrid reckons the proposed structure would not increase the total transmission revenue recovered from non-locational and common services, but would change how those charges vary according to when electricity is consumed.
The proposal does not, however, quantify what this would mean in dollar terms for a specific facility, or how much flexibility data centres or other large users would be expected to provide. “VicGrid is reviewing Victoria’s transmission pricing methodology to make sure it is responding to our changing energy landscape,” a VicGrid spokesperson told W.Media.
“We’re consulting on proposed changes designed to ensure we allocate costs fairly, use the network efficiently, provide clear signals to transmission customers and investors and keep down costs to consumers,” the spokesperson added.
Shifting consumption
VicGrid said it had not made assumptions about a specific amount of electricity consumption that large users would be able to shift. However, that leaves the potential impact on data centre operators unclear. The consultation paper does not provide an example of the potential dollar difference in transmission costs for a facility that can shift consumption compared with one that can’t.
It is also unclear from the paper how the peak-pricing signal would interact with the separate demand-based charging arrangement used for large customers with a negotiated Contract Agreed Maximum Demand (CAMD), a group the paper identifies as including data centres, since those customers already pay whichever of a demand-based or energy-based calculation is lower.
The question is particularly relevant as Victoria plans for a growing number of large new electricity loads. Data centres are named in VicGrid’s consultation paper among the large loads driving the review of transmission pricing arrangements, but the organisation says: “VicGrid is not seeking to set out where large new loads should locate or how they should respond.”
Transmission pricing already includes a separate locational component, VicGrid said, reflecting differences in the cost of providing transmission services at different points on the network.
The proposed peak-demand signal would therefore sit alongside, instead of replacing, the existing locational component. In practice, that leaves data centre developers facing two separate transmission considerations: the cost associated with where a facility connects, and potentially the cost associated with when its electricity demand occurs.
Bespoke loads
Separately, the consultation paper also proposes a mechanism aimed at new large bespoke loads like data centres: a “CAMD collar” that would set a minimum demand charge at 90 percent of a customer’s contracted maximum demand.
VicGrid says this is intended to discourage new customers from overstating their future demand requirements when negotiating connection agreements, after finding that actual usage by large loads can lag contracted capacity by a significant margin. This sort of mismatch can potentially leave other transmission customers subsidising network augmentation built to serve demand that never eventuates.
How much flexibility data centres actually have to respond to a peak-pricing signal remains an open question. Potential sources of flexibility could include shifting workloads, using batteries or managing cooling and other electrical loads, but VicGrid has not specified which technologies or operating strategies it expects large users to employ.
Industry body Data Centres Australia said it had looked at the proposal but was not yet in a position to comment, adding that it expected to have a position in the coming weeks. Meanwhile, no final decisions have been made on the pricing methodology. Feedback from the current consultation will inform the draft methodology VicGrid submits to the Australian Energy Regulator for the 2028–33 regulatory period.