Data centres say they will drive down network part of bills, and want us to embrace their diesel generators

AI data centres drive down power bills – at least that is the headline that Nextdc’s Shayne Kumar led with at this week’s energy forum in Melbourne. 

He says AI data centres “actually help to drive down power bills” by creating a flat load that sucks up excess solar and drives up network use during the day.

“They can actually help to drive up utilisation during the hours the grid is not utilised and help to smooth out the costs that would otherwise be leveraged onto affiliate consumers,” he said at Australian Energy Week. 

“Enabling growth at data centres does actually help drive down the network component of bills, so 30-40 per cent of bills.”

Kumar was at his most controversial at the AEW conference, pushing networks to move faster, and even saying that using data centres’ backup diesel generators might be a better option than building new gas peaking plants as a way to unleash “inherent” flexibility.

“Almost every data centre has backup diesel generation, and if you’re only running these for a handful of hours a year, perhaps that is better than underwriting a taxpayer funded gas peaker that only fires up once a year,” he says. 

But as with much said by the data centre industry, these benefits are still theoretical even if they are backed by forecasts from networks themselves. 

New South Wales (NSW) networks Ausgrid, Endeavour and Essential Energy do expect a drop in network fees for other customers. 

“By increasing utilisation of our networks, increased demand from data centres can lower the share of network costs borne by other customers, lowering the network portion of electricity bills,” the networks said in a joint submission to the NSW data centre inquiry in March.

“This is due to the fact that network revenues are fixed by the Australian Energy Regulator (AER), so spreading the same amount of revenue across more units of demand lowers average costs for our other customers over time.”

The other question is when consumers can expect to see this benefit.

In the same submission, Ausgrid said its proposed Wallumatta substation is being planned to support data centre demand and if it’s approved it will play a role in pushing down consumer network bills by spreading fixed network costs over higher consumption.

In May, the energy market regulator lowered Jemena’s prices so annual network costs are set to fall by $189 by 2030-31 for a typical residential customer and $516 lower for a typical small business customer, compared to 2025-26.

Jemena’s Shaun Reardon said this was because of higher electricity use across the network by “new major connections” as well as higher household use.

But higher power prices

But even if data centres do begin to reduce network costs, they’re also likely to be the cause of a hike in the electricity component of bills. 

Last week, the Climate Council released a report suggesting a possible 26 per cent hike in the electricity component of power bills by 2035 thanks to data centres’ very high electricity needs.

The assumption was made on the basis that new AI data centre build outs do not bring new generation with them.

The federal government’s data centres principles issued in March include that they bring “new and additional clean energy generation and/or storage to offset demand”, but does not mandate this. 

The Australian Energy Market Operator (AEMO) estimated data centre energy use at roughly 2 per cent of the electricity in the National Energy Market last year, and forecasts it to triple by 2030 to 6 per cent. 

AI data centres may also be too late to really play a role in smoothing market volatility. 

Utility and home batteries are already having a noticeable impact on the solar duck, the phenomenon where more solar generation than can be used floods into the grid during the day.

The change was clearly demonstrated in South Australia, where in just 12 months storage has radically changed the market volatility and pricing dips and highs. 

This scale of this change is already enough to “fundamentally” change how the Australian Energy Market Operator (AEMO) is planning the grid.

Hurry up networks

Kumar is never uncomfortable about telling people home truths about his industry, whether it’s that data centres aren’t the grid stability solution policymakers want them to be, or that their power needs will eventually overcome Australia’s ability to deliver. 

And he says that if networks such as Ausgrid, Endeavour and Essential want the benefits they see in data centres, they have to move faster and be more flexible. 

“What I’d love to see is really dense power solutions that can be deployed at data centers, while managing the fire risk, to enable flexibility. I think that is going to be the key enabler to net zero, to lower cost for consumers, to greater grid utilisation,” Kumar says. 

“I think it’s worth touching on the barriers to that, though. When I deal with DNSPs and TNSPs [distribution and transmission network services providers], everyone’s really keen to work on these innovative solutions, like flexibility and things like that, but they often come outside of the standard process. 

“So when you want to do something innovative, you’re waiting years… for a reasonable response and contract to enable that sort of thing.”

His view is that networks are not incentivised to work at speed and scale nor to fully consider big loads, and he wants them to “have greater skin in the game” with penalties for not delivering on time and budget, or liquidated damages for contract breaches.

At the same conference, Westwind managing director Tobias Geiger also made the point that networks’ focus is not on speed, but in his case he was reminding industry that networks’ key KPI is not about connecting projects quickly, but reliably. 

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