Renewables players eye power-hungry data centre deals as auction spoils dry up

As more developers miss out on prized transmission access, some are exploring the idea of supporting prospective data centres in a tactical reinvention of their business models.

Renewable energy developments destined to miss out on securing hotly contested access to a transmission line in the south west of NSW are exploring the prospect of powering future data centres in a bid to keep their projects viable.

Data centres are notoriously power intensive and their adaptation to the artificial intelligence age is putting greater demands on electricity consumption.

That’s good news for the cohort of renewables developers which will inevitably miss out on a role in the South West Renewable Energy Zone stretching from Murrumbidgee to Buronga, and which its advocates argue is ideally suited to hosting a data centre.

The Australian earlier this year revealed that NSW had determined Origin should win transmission access to the South West REZ. The Australian understands Origin is expected to secure nearly all the capacity from the transmission line, leaving some of the country’s largest players such as Andrew Forrest’s Squadron Energy and Tilt Renewables - owned by the Future Fund, QIC Global Infrastructure Fund and AGL Energy - with unfulfilled large-scale wind and solar project plans.

Industry sources say those developers are not idle. They are well versed on the appeal of luring data centres to the region and allowing Australia to capitalise on a significant economic opportunity while advancing their renewables ambitions.

The South West REZ, one of six such designated zones, is particularly appealing to developers looking to overcome prohibitive planning laws as the local community are broadly supportive of new projects.

The South West REZ will be carried by the $3.3bn 500KV ­HumeLink, primarily built to ferry the electricity produced by Snowy Hydro. With line constraints, the South West REZ will house about 2.5GW of new renewable energy projects - much smaller than other REZs.

Projects without transmission access will struggle to proceed as they risk being a stranded asset - producing electricity that cannot be consumed.

A spokeswoman for the NSW government and Origin declined to comment on the access rights, citing strict confidentiality requirements regarding the process.

Squadron Energy’s chief executive Rob Wheals signalled the developer’s interest in linking data centres with developments in the region. He would not be drawn on the status of the Squadron’s application for transmission access to the South West REZ, saying he was bound by the same confidentiality rules.

“There is a big opportunity for an expansion of the South West REZ to meet our growing clean energy needs, so that planning should start now. The South West REZ is a region where renewables projects have been largely welcomed and communities can see the flow-on benefits that come with these projects,” said Mr Wheals.

“We saw 15GW of generation projects submitted for 3.98GW of access rights and we know there is strong wind and solar resources in the region. This area and far Western NSW are key to expanding renewable energy generation into the future.”

On the surface, the South West REZ shapes as the most logical of choices for hosting data centres with an abundance of landmass co-located with renewables. But the prospect of bringing in data centres would also need to be carefully managed and has not been broached with the community.

Australia shapes as particularly attractive to meet the needs of Asia Pacific customers.

Amazon, which already has two data centres in Australia, has plans to double its presence with new facilities in Sydney and Melbourne.

Microsoft in 2023 said it will spend $5bn to increase its Australian data centre presence by nine sites. Once developed, the tech giant plans on operating 29 across Canberra, Melbourne and Sydney.

And Goodman Group, historically an industrial property player, last month raised $4bn to accelerate its push into data centres. Goodman said it plans to develop facilities in Sydney and Melbourne with some 1GW of capacity.

Barring any unforeseen issues with Origin’s proposal, that would leave Squadron’s concept for the Gol Gol Wind Farm in the South West REZ unsuccessful.

While some of Australia’s largest renewable energy developers are exploring Plan B options, Origin is in negotiations with the NSW government to secure access for its Yanco Delta wind farm. Talks are expected to be formalised within the next few weeks.

While there is no certainty those talks will be formalised, the preliminary award of transmission access has buoyed confidence in the prospects of the 1.5GW Yanco Delta project, one of Australia’s largest wind projects if realised.

Origin is looking for capital partners and while sources caution that talks are at an embryonic stage, bankers engaged by Australia’s largest electricity and gas retailer have indicated to the market that the company could be open to divesting 80 per cent of its stake in the Yanco Delta.

This would minimise Origin’s capital expenditure requirements while still giving it the plentiful wind generation capacity that it will need as coal exits the system.

Origin declined to comment, but pointed to recent disclosures in which the company had outlined its intention to assess a range of capital efficient options to finance construction of Yanco Delta. Proposals under consideration include partnerships with capital providers.

Sources close to Origin described pitches from bankers as premature, insisting that plans for the development are still in their early stages.