Massive data centre demand requires rethink of Australia's entire energy strategy
The AI boom means we will face a power crisis as data centres demand massive electricity increases, forcing governments to reconsider coal and nuclear options.
In the next four years Australian enterprises plan massive use of local artificial intelligence, which will require data centres that will explode the demand for electricity.
All the assumptions that federal and state governments have made on energy supply strategies covering coal, renewables, gas, and perhaps nuclear technologies must now be changed or we will not be able to supply reliable power to the data centres.
As I will explain below, we can’t provide that power unless politicians are prepared agree to dramatic changes in direction. The projected power demand increases in the major markets, New South Wales and Victoria, are massive
In NSW, the grid operator Transgrid, as a result of power requests from proposed data centres, estimates data centre power demand will grow from 4 per cent of the state’s electrical use to 11 per cent by 2030.
In Victoria, the Australian Energy Market Operator (AEMO) estimates by 2030 data centre power usage will rise from the current 2 per cent of Melbourne’s power usage to 8 per cent.
Until last month the accepted strategy was to use renewables (solar and wind) as a base load.
Renewable power is extremely expensive when the cost of backup facilities, limited life of generators and agricultural damage is included.
But, a data-led discovery by AEMO showed renewables cannot provide reliable base load power without huge backup, and diesel is the only backup available.
This discovery was concealed until it was revealed first by my colleague Chris Uhlmann followed by my commentary.
Europe also discovered that using renewables as a base load generation mechanism does not work. There is an important role for renewables, but not as a reliable base load provider.
The chief of the world’s largest company by market capitalisation Nvidia, Jensen Huang, believes the AI revolution will rank with the discovery of electricity in global importance. And energy supply is at the base of the AI revolution.
If Australia does not have sufficient reliable energy then, while some of our data can be stored overseas, much of it is subject to restrictions which means it must be stored in Australia.
Future shortages of reliable electricity will mean we will not have artificial intelligence in key areas – it’s like staying with candle power.
Many skilled people will need to leave the country. The idea we could begin making things in Australia or have a global ranking in, say, the health system will need to be discarded. And, even some defence planning will be impossible.
The future need for AI is now well understood in large numbers by big and small enterprises. They now realise their growth (and perhaps survival) will depend on a new era of higher productivity, much of which will be driven by AI.
By 2050, around 20 per cent of Victorian and NSW energy consumption will come from data centres.
NSW and Victoria have clear land strategies to house the data centres but need a power strategy.
At some point both NSW and Victoria, plus Energy Minister Chris Bowen, will have to explain to the nation that our current power strategies are not able to provide sufficient base load power for these data centres.
Many years before the US, China realised it would need vast amounts of energy to be an AI superpower and installed generation capacity using every means available – coal, gas, nuclear hydro, renewables and so on.
From day one, President Donald Trump realised the US would have to substantially increase its energy production if it was to take advantage of its AI technology. Trump declared, like China, the US would use every means available.
Currently, gas-driven power has been embraced by many US data centres. Last week Australia’s largest gas pipeline group APA announced a substantial upgrade in the capacity to supply Sydney and Melbourne.
In theory, the extra gas could be available in about two years but given Australia’s energy policy chaos buyers, including proposed data centres, are nervous.
Worse still, global demand for gas-driven turbines has exploded so it may be many years before gas driven turbines are available for Australia to drive data centres.
Victoria and NSW still plan to shut down coal-fired power stations. But, coal stations now need to stay open for longer periods until gas turbines are available to generate power both for the data centres and the general grid. Nuclear will return to the agenda.
The US is now rapidly developing smaller nuclear plants dedicated to one or two data centres.
How do we get out of the mess that has been created?
At present the only economic way to provide reliable power is to extend the life of the coal power stations well into the 2030s. It will be costly and will make short-term emissions targets impossible.
But, on the basis of current technology, to achieve long-term emission targets, those coal-fired power stations will need to be replaced either by small nuclear stations or, on the basis of current technology, thorium.
The ALP might be able to argue that since the election there have been big strides in small-scale nuclear technology. A more politically acceptable alternative might be to examine the thorium-based power generation systems that do not produce any significant waste and are cooled with molten salt.
China is the leader in this technology and is now using it in submarines and some surface ships. The US has also done development work in this area.
These will be very difficult decisions for the current government, and they will need to be made before the next election.
Another problem for both Sydney and Melbourne is data centres, on present technology, require a lot of water and both states have experienced periods of drought.
Victoria installed a massive solar/wind power generation facility. It may need to be duplicated to provide the water necessary. NSW will face similar decisions.
At some point in the next few months the Australian community will start to understand the national dilemma I have just described. Ordinary Australians may also not be aware that these data centres are subject to price subsidisation.
I suspect data centres will have a degree of preference in the time of power shortages which makes it essential for all supermarkets and other power users to install diesel power generators if roof solar and batteries are not sufficient. These issues will dominate the parliaments and media discussions next year.
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Originally published as Massive data centre demand requires rethink of Australia's entire energy strategy
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