Energising innovation: Data centres and the future of Australia’s electricity network

Why the increased focus on data centre energy use?

Driven by our fast and furious demand for instantaneous data and AI, the development and operation of data centres is placing unprecedented demands on Australia’s electricity network.  To illustrate the scale of this issue, consider a data centre with a modest load capacity of 5MW. Operating at full capacity, in the space of a five-minute trading interval market data suggests the data centre will consume roughly the same amount of energy as 8,000 average Australian homes.

As the appetite for data and AI continues to surge, public and private investment in data centre development across Australia is on the rise. This situation has prompted Australia’s electricity regulator, market operator and network operators to closely monitor and discuss how to manage grid access for data centres, while ensuring system strength and security.

How are energy regulators responding?

In response to these challenges, the AEMC has introduced significant reforms to the NER, fundamentally altering the technical and regulatory landscape for data centres connecting to the electricity network in the NEM.

On 22 May 2025, the AEMC issued a final determination and rule change to the NEM technical access standards, referred to as Package 1 reforms. These technical access standards, specify the technical performance requirements that connection applicants, such as data centres, must meet to connect to the NEM.

This rule change is important for developers of data centres seeking to connect new facilities to the transmission network because Schedule 5.3 of the NER will be amended to cover plants that consume electricity from the network, such as data centres.^[1] Distribution Network Service Providers (DNSPs) will still have discretion to apply only those parts of the schedule necessary to prevent adverse impacts on other network users on their distribution network.^[2]  

The AEMC’s determination signals that with effect from 21 August 2025 the application of technical access standards will be shifted from a NEM market participant registration-based assessment to an infrastructure/project-type-based approach.^[3] As such, schedules 5.2, 5.3, and 5.3a of the NER will be amended to apply according to the type of plant connecting to the network, rather than the registration status of the owner or operator. For data centres, this means that regardless of ownership structure, they will be subject to consistent technical requirements.^[4]

AEMC has signalled that there will be a Package 2 to these reforms (and which are currently open to stakeholders) which will propose new standards to address the projected growth of large-scale electricity users — particularly data centres— and ensure these facilities can respond appropriately during power system disturbances.^[5]

What are the changes? In short, the key changes to the Access Standards contained in Package 1 are:

• Introduction of Clear Classification: The new access standards categorise plants by type rather than by owner or operator registration. This ensures consistent treatment of similar technologies including generators, integrated resource systems, synchronous condensers and HVDC links, improving ease of connection.^[6]
• Amendments to access standards: The final rule implements reforms for generators, integrated resource systems, and synchronous condensers, focusing on best power system performance, improving power system resilience and supporting efficient investment.^[7]
• New access standards for HVDC Links: the access standards for HVDC links will now align with the standards applicable to inverter-based generation and integrated resource systems, recognising their similar impacts and capabilities in the energy market. These access standards will apply to data centres using HVDC systems to connect to the electricity network.^[8]

When do the changes take effect?

These new access standards commence on 21 August 2025.^[9]

In the interim, AEMO has communicated to the market that those participants with existing grid connection applications in play may elect to apply some or all the new access standards for their connection request.^[10]

AEMC has signalled that Package 1 is of importance for Data Centres because these changes are designed to facilitate:

• Faster and more efficient connection process: Classifying plants by type provides uniform technical standards that will facilitate faster connections for data centres. By consequence they will be able to respond promptly to growing energy demands which is vital for maintaining and scaling operations.
• Cost Reductions in Connection Processes: The amendments clarify technical requirements, which will help minimise costly negotiations between data centres and network service providers. Reducing ambiguity provides data centre with greater certainty regarding connection timelines and costs, which is crucial for maintaining competitive operations in an increasingly energy-intensive environment.
• Enhanced Reliability and Stability of Power Supply: The updated standards focus on reactive power and voltage stability with a view to improving power supply reliability. As data centres rely heavily on consistent electricity, improved system stability will help reduce the risk of outages, ensuring that data centres can maintain uninterrupted service.

With data centres now squarely in the spotlight of Australia’s electricity regulator, market operator and network operators, data centres can expect further changes to the National Electricity Rules that will need to be considered when developing and operating data centre infrastructure.

Stay tuned for our upcoming insight series, where we will further explore the key considerations, opportunities and challenges shaping the energy sector amidst the expanding data centre market in Australia.