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He said the “enormous” and “breathtaking” connection figures received by AusNet and AEMO defied reality.
“Hopeful developers have an incentive to overstate their prospects to create options to later sell,” Mountain said. “There will be a huge gap between the total electrical demand of those proposals and what actually gets developed.”
Mountain, the director of the Victoria Energy Policy Centre, warned of a misalignment of incentives: developers want valuable permits, the government wants to facilitate those applications in the name of economic growth, and network monopolies are eager to expand their regulatory asset base to boost profits.
Fuelled by the explosive growth in cloud computing and AI tools such as ChatGPT, data centres are massive industrial warehouses filled with the servers and storage needed to process vast amounts of digital information.
These sites not only have a massive thirst for electricity, but also use huge amounts of water to cool servers down.
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Data centres have also emerged as a shining light in Victoria’s economy, driving a surge in commercial building investment that has kept construction pipelines going amid a broader market slowdown, according to the budget update released this month.
But if billions of dollars’ worth of grid upgrades are completed for demand that never materialises, Mountain says it will be Victorian households and businesses that could be left paying the bill – a repeat of the “gold-plating” of the past, when electricity distribution networks overinvested in poles and wires in the name of demand growth that never materialised.
“If policymakers and network companies fail to be disciplined in sheeting back augmentation expenditure to these data centre companies, then we’ll end up with exactly the same problem of wasted over-capacity we have had,” he warned.
To protect consumers, Mountain says a system of financial bonds and minimum payment obligations should be introduced. This would ensure that if a data centre fails to consume the power it promised (and so generate the promised revenues), the developer – not the public – would remain responsible for the network costs.
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It is the only way, he argues, to “sort the wheat from the chaff” and ensure realism.
“I get a little bit weary when I hear of government’s promising expansion. This Victorian government has shown great willingness to pass costs on to others in pursuit of its own policies,” Mountain said.
“The government must protect consumers.”
Premier Jacinta Allan has vowed to make Victoria the data centre capital of the country and secure data centre jobs. Despite this, the government has so far been silent on how it will protect consumers and ensure centres are forced to pay for the extra burden they place on networks.
Melbourne Water said it is fielding applications from hyperscale data centres that require more water for cooling than nearly all the city’s top 30 business customers, a “massive” spike in demand that was missing from its long-term forecasts.
To ensure this pressure doesn’t result in higher bills for the broader community, it says it would be “prudent” for tech companies to pay upfront for the infrastructure upgrades required to support them.
Through a spokesperson, Energy Minister Lily D’Ambrosio did not address questions about the demand of data centres on Victoria’s grid, nor did they answer questions about whether the government was developing any mechanisms to charge operators.
“Our focus is on securing the state’s water supply, while also supporting the tech and innovation industries to grow local jobs and our economy,” the spokesperson said.
“National energy ministers will meet next week to discuss policy settings that balance data centre investment with consumer protections and energy reliability.
“An expert review is being undertaken by DEECA [the Department of Energy, Environment and Climate Action] and VicWater, the industry peak body, to ensure existing water use policies for large industrial users, including data centres, keep pace with this rapidly emerging sector,” they added.
An AusNet spokeswoman said Australia’s existing network regulatory arrangements have in-built safeguards to ensure data centre developers fund 100 per cent of the costs associated with their connection to the transmission network (ie. individual connection costs).
“This includes funding the establishment of new terminal stations or zone substations required to facilitate their connection,” she said.
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