“I would choose the data centre:” Renewable energy boss says firm off-taker deals preferable to CIS

Data centres are not the silver bullet for renewable energy project financing but they are more effective than relying only on the federal government’s flagship underwriting scheme, one renewable energy developer says. 

European Energy Australia managing director Catriona McLeod says even though data centre customers are demanding, she’d take them over the federal Capacity Investment Scheme (CIS) “every day”.

“We have, in the last two to three years, brought six projects to financial close that were all supported by uptake with tech companies,” she said at an energy summit last week. 

“There are some really tough negotiators in the data centre offtake space. So I wouldn’t say it’s an easy process, but if I was choosing between offtake with data centre load or the Capacity Investment Scheme, for example, I would choose the data centre offtaker every day.”

McLeod believes the CIS is well run and managed, but as a government scheme it also contains some “intrinsic” difficulties, in that the bidding process is opaque and it takes a long time between bid and finding out a result. 

The CIS is also not regarded as a “silver bullet” for new projects, but is designed as an underwriting scheme that reduces downside risk and helps developers obtain finance. However, nearly every project depends on landing an off-take deal, and some developers told the conference that the CIS is an important part of the jigsaw.

European Energy has completed one project under the CIS, the Mokoan solar project that has recently been refinanced and will now add a big battery. Mokoan also has a contract with Amazon, as has the nearby Winton North solar and battery hybrid that is now under construction, but did not obtain a CIS.

European Energy recently won CIS underwriting agreements for its Bullyard and Kayuga solar and battery hybrid projects, which are yet to proceed to construction.

McLeod says data centre operators are clear about what they want and if a developer can meet those objectives, it’s easier to bring projects online quickly.

Data centres are presented as being both the potential saviour of renewable energy projects, but only those ready to be built now, as well as a way to bring down transmission fees, and a real problem with regulators and some governments worried about their ability to suddenly dump loads when times get tough as well as their voracious energy demands.

In Victoria, where the government is promising light-touch regulations for data centres, the new grid manager is sanguine about the impact. 

Vicgrid CEO Alistair Parker says they’re not “scared” of the industry’s impact on the grid. 

“If I’d been asked this question a year ago, I would have said the sky was falling again. They were a horrific threat, and what are we going to do about them?” he said at the Australian Clean Energy Summit.

“But I think the more we get to understand how they actually work, and we see some work coming out of the UK where data centers can respond to system demands very promptly, very short notice, and still do 99.5 per cent of their throughput work without gas turbines or anything like that, just natively within the servers. 

“They look more and more like… a really useful and flexible load, and something we can work with.

“I don’t see it being a really major change in what we’re doing, and in particular because [of] what we’re seeing as people come and connect. 

“There’s a bit of alarmism around data centers that when we really get under the hood, we’re not quite scared about.”

Parker says the 2025 Victoria Transmission Plan already factored in a high demand case based on data centre needs, and that will rise in the next 2027 plan.

But he’s also seeing innovation from data centre operators about how they will function within the grid, including arrangements to “very deliberately” not use transmission capacity on very hot days, for example.