Regulators are asking hungry data centres to pay more for grid power, so households can pay less

Should data centres be required to pay more to play and draw power from the Australian grid? 

It’s an idea countries around the world are beginning to embrace, but one that is splitting governments in Australia. 

But as the epic energy demands of data centres cause supplies to tighten and wholesale prices to rise, industrial bulk buyers in jurisdictions as diverse as Spain, Japan and some US states, are being asked to pay more to account for their inflexible 24/7 electricity needs.

And while Australia is being sold to data centres – loudly – as a haven of cheap electricity, this is not the selling point some regulators want advertised anymore. 

Data centre operators in Malaysia are paying 15-20 per cent higher grid fees to compensate for their need for consistent baseload power and limited flexibility at moments when the grid is under pressure, according to a Morgan Stanley note in January. 

They’re effectively paying about $US140 ($A200) per megawatt hour (MWh), which analysts at investment bank Morgan Stanley say is in line with global benchmarks.

Operators in the US could see the average prices they’re charged per megawatt hour (MWh) go up by 30-40 per cent, to foot the bill of building more generation to handle hyperscalers’ city-scale energy needs. And in Japan data centre consumers in Japan will pay an estimated 5-10 per cent more than residential customers.

“Tiered power pricing is going global much faster than expected, reshaping the powering AI theme and helping lower household bills,” Morgan Stanley analysts wrote.  

“Tighter power markets are pushing new bulk buyers like data centers to pay more for power, while indirectly lowering household bills by subsidizing new grid investments.”

In the US, utilities are changing tariffs to protect existing taxpayers and reduce stranded asset risk if something goes wrong, such as a data centre operator going bankrupt and no longer needing the grid capacity.

Ireland, where the Central Statistics Office found data centres used 22 per cent of all energy in 2024, is changing its fees to ensure each customer category contributes its fair share to grid usage, and Spain already has changed its access tariffs. 

If coal plants can flex, so can data centres

Data centres are notoriously inflexible energy users because they must pay out hefty penalties to their own customers for any downtime. 

But flexibility, or demand response, is not completely impossible for the industry — as seemingly inflexible coal power stations have already proved on the generation side.

Google has signed deals in Tennessee and Michigan to reduce power to its data centres when the grid is under extreme pressure, proving that these entities can have a little flexibility, says Climate Councillor and Iberdrola policy executive Joel Gilmore. 

“Going forward perhaps as we see more data centres, there might be more opportunities [from] AI training or data processes that can be delayed by an hour or moved to another data centre in another region that does give some flexibility to the grid,” he told Renew Economy. 

“The bigger part of this story is coordination. We want to make sure everyone is paying their fair share, but also not paying more than necessary.”

Prepare, or just let it run

The data is already showing that data centres equals higher bills for everyone else.

Late last year Bloomberg found that wholesale electricity prices in areas in the US near data centres are up to 267 per cent higher now than five years ago, compared to smaller increases for those further away.

Some governments in Australia are now looking at how to prevent the same thing happening here.

Others are actively going in the other direction. 

The federal government is finalising plans to require data centres to meet renewable energy and water benchmarks in order to use streamlined planning processes, and industry minister Tim Ayres last year said the government’s preference is they come with their own renewable or gas supplies. 

New South Wales (NSW) is considering making data centres bring their own power supplies and pay to upgrade water sources so they don’t put extra financial burdens on households.

Data centre needs are already putting prices up for Sydney households: Sydney Water estimates the industry will be using 250 megalitres a day by 2035, and this was a factor in the pricing regulator’s decision to lift water bills by $168 a year last year. 

And yet Victoria, racing to catch up with its neighbours to capture some of the lucrative new industry, is promising fewer rules and cheap power to entice data centres south. 

The state’s industry and jobs minister Danny Pearson even told the AFR in January that there isn’t time to make rules for the sector and they’ll fix any problems when they appear. 

Even if Victoria feels like it’s missing out on the action, data centres are a big enough industry to make the market operator take note. 

It estimates data centres currently use about 2 per cent of power in the grid, rising to 6 per cent by 2030, as per its 2025 Inputs, Assumptions and Scenarios Report.

Good grid citizens

‘Fair’ would see these big, inflexible industrial users having the same, if not more obligations put on them than households, which are already weighted down by rules and tariffs, says Energy Consumers Australia policy head Brian Spak. 

“We put a lot of obligations on small customers in the way they connect today,” he notes, such as what inverters must be able to do.

“We should be doing the same thing around these data centres.”

Many data centre operators do want to be good grid citizens, and are actively looking for or signing up for power purchase agreements with renewable energy sources.

The question when it comes to network costs, which make up almost half of consumer and small business bills and are still increasing, is who will be left to pay for upgrades when a data centre’s needs force early work, Spak asks. 

“What do you do if these new users require network that is ultimately shared by many customers, but they’re the primary cause of investment being brought forward to serve their needs?” he says.

“How do you isolate other rate payers if, for example, one of the businesses goes bankrupt, which is a real possibility here.”

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