The evolution of the internet from the early days of Web 1.0 to the sophisticated, decentralised architectures of Web 3.0 has transformed the way we live, work, and connect.
Cloud computing, private databases, and proprietary applications have become the backbone of modern society, driving an insatiable demand for data centres. In Australia, data centres built out capacity is projected to more than double from 1,350 MW in 2024 to 3,100 MW by 2030.1
This surge is driven not only by the growth of digital services but also by the explosive rise of artificial intelligence. AI workloads demand up to five times the processing power of traditional data centre operations, pushing the concept of “hyperscale assets” to the forefront.
These next-generation facilities are designed to handle unprecedented workloads efficiently, with capacities now reaching up to 1,000 megawatts per site.
Traditionally, the preferred locations for data centres have been major cities, such as Sydney and Melbourne.
These urban centres offer reliable power, robust fibre networks, cloud connectivity, proximity to industry ecosystems, and access to skilled labour, essential ingredients for delivering high-quality, low-latency digital services.
Sydney alone accounts for 60% of Australia’s built-out data centre capacity, with Melbourne close behind at 30%2. Both cities are experiencing rapid deployment and strong development pipelines, and their total capacity is expected to double within the next decade.
However, this urban concentration is not without its drawbacks. The relentless expansion of data centres in metropolitan areas is placing significant strain on electrical grids, threatening to impede the natural growth of residential and commercial loads.
Land in these cities is both scarce and expensive, and data centres are major consumers of water and energy, further intensifying competition for essential resources.
At the same time, meeting ambitious sustainability targets is increasingly difficult in densely populated areas where renewable energy integration is constrained and space for on-site, utility-scale generation is limited.
The symbiosis between data centres and renewable energy projects
This situation requires to consider alternatives, and regional Australia emerges as a compelling solution. Regional areas offer abundant land and natural resources, making them ideal for co-locating data centres with hybrid renewable energy generation assets such as solar, wind, and battery energy storage systems (BESS).
By situating data centres close to their power sources, pressure on overloaded transmission and distribution networks can be alleviated, while any surplus electricity can be exported to the grid, and Marginal Loss Factor (MLF) charges can be eliminated or drastically reduced.
Under these arrangements, BESS can also participate in frequency control and ancillary services markets, providing valuable support to the broader energy system.
A robust and reliable pathway to 100% renewable energy usage in data centers hinges on the strategic integration of solar, wind, and BESS systems.
Solar generation typically follows a predictable daily cycle, commencing around 7 a.m. and tapering off by 5 p.m., while wind generation is inherently variable, influenced by local meteorological conditions and requiring site-specific assessment.
This variability underscores the necessity of BESS within hybrid systems. Energy storage projects not only bridge the temporal gaps between solar and wind output but, with the significant reduction of BESS costs with 40% average price drops from 2023 to early 2025, now present a compelling investment case for 6 to 8 hours storage durations, effectively addressing periods with minimal or zero renewable generation.
The operational flexibility of modern data centers further enhances the viability of such hybrid systems. By dynamically adjusting their load profiles, ramping consumption up or down in response to renewable generation curves, data centers can optimize their use of clean energy.
This delicate synchronization between generation and consumption is orchestrated by advanced Energy Management Systems (EMS), which enable real-time balancing of energy flows, maximize renewable utilization, and minimize reliance on grid power.
In scenarios where external renewable sources produce excess energy, EMS can coordinate both the charging of BESS and the temporary increase of data center loads, thereby contributing to broader grid stability.
The design and configuration of these hybrid systems must be tailored to each deployment.
Key factors include the level of renewable penetration in the local grid, the extent of curtailment affecting nearby renewable generators, as evidence by 2024 data from NEM solar farms, which experienced an average curtailment of 4.5% with some units exceeding 25%, the number and type of rotating and storage assets connected, and the short-circuit capacity at the point of interconnection.
A thorough, site-specific assessment of these parameters is essential to determining the optimal mix and sizing of technologies, ensuring both operational resilience and economic viability.
Collaboration between data center operators and energy suppliers, whether through co-investments or long-term power purchase agreements (PPAs), is pivotal in accelerating the deployment of renewable projects.
These partnerships enhance the financial viability of new developments by strengthening bankability, while also delivering price stability and long-term visibility. Such strategies are instrumental in increasing the probability of achieving ambitious renewable energy targets specifically, reaching 82% by 2030 and Net Zero by 2050.
Overall, the economic and social benefits of this approach are profound. Large-scale data centre projects in regional areas create jobs, foster local talent development, and stimulate economic growth.
They empower local industries from healthcare to education by providing world-class digital infrastructure and connectivity. This, in turn, helps bridge the digital divide between urban and rural communities, ensuring that regional Australia is not left behind in the digital age.
Additionally, decentralising our data centre footprint enhances national resilience. By distributing critical infrastructure across a wider geographic area, we reduce systemic risks associated with grid congestion, natural disasters, and security threats concentrated in major cities.
Regional data centres are also ideally suited for AI workloads and data storage, which do not require ultra-low latency. This allows edge data centres in urban areas to focus on latency-sensitive applications such as financial transactions, video streaming, and online gaming, creating a balanced and efficient digital ecosystem.
Of course, there are challenges to overcome. The lack of fibre network infrastructure and skilled resources in some regional areas, as well as the potential for increased latency due to geographic distance, must be addressed.
Therefore, strategic investment in high-capacity fibre backbones, collaboration with local educational institutions, and careful workload allocation can ensure that regional hyperscale data centres deliver both performance and reliability.
Success will depend on early and sustained collaboration among renewable energy developers, data centre operators, network providers, regulators, councils, and communities.
With visionary partnerships and strategic planning, regional data centres can become the cornerstone of a resilient, sustainable, and inclusive digital future for Australia.
- Mandala Partners: Empowering Australia’s Digital Future Report October 2024 ↩︎
- CBRE – Research Australia-data-centres-2024 ↩︎
Carlos Carrillo is Consultancy Manager for Australia and New Zealand, Enertis Applus+
