How Albanese could force states to follow his lead on green-energy data centres

Prime Minister Anthony Albanese could force pro-coal states to comply with rules mandating renewable energy for data centres, setting up a clash over the lucrative artificial intelligence boom at next week’s meeting of national cabinet.

Industry Minister Tim Ayres told this masthead that national unity was critical ahead of the prime minister’s meeting with state leaders on Wednesday to sign off on obligations for the construction of the digital processing facilities the power-hungry programs demand.

Ayres said state co-operation was key to securing “more investment, a modern energy system, water security, and … benefits to locals”.

But Albanese’s aim of winning support of states, which control planning and regulations, has been threatened by the intransigent conservative premiers David Crisafulli, of Queensland, and Lia Finocchiaro, of the NT.

The two states promote the use of fossil fuels and this week opposed a plan to require large data centres to power their operations with renewables, when they dissented from the majority support of other states during a meeting of state and federal energy ministers on Tuesday.

The rise of renewables in the electricity grid is contentious for Queensland, which has a fleet of state-owned coal plants suffering in competition from wind and solar farms, while the Northern Territory is backing the development of a gas field in the Beetaloo Basin, which it says could fuel an industrial boom in the Top End.

Queensland Treasurer and Energy Minister David Janetzki said after the meeting that his state supported “reliable and sustainable” power, a nod to fossil fuels, not “underdeveloped ideas that hand increased power to Canberra”.

A communique from the Energy and Climate Change Ministerial Council said the majority of ministers agreed to “mandate that data centres offset their electricity demand by investing in additional renewable generation”.

Ministers from the federal, NSW, Victorian, Tasmanian, South Australian and ACT governments agreed to develop a scheme to force data centres to prove they sourced electricity from renewable projects.

Support from a majority of states is required for the scheme, which means it can be implemented without the backing of Queensland and the Northern Territory, which are governed by conservative parties that often oppose Labor-led states at ministerial forums.

Australia is home to 162 operating data centres, which currently consume about 2 per cent of total electricity demand on the eastern seaboard. The Australian Energy Market Operator has forecast data centres would reach 10 per cent of demand by 2050.

It is unclear how the renewables mandate would work.

In a landmark speech outlining his government’s vision on AI, Albanese said the government would enact new legislation, to be tabled early next week, for new, large data centres to offset their power usage and “build new renewable generation – and firming – to strengthen our national energy resilience”.

But Assistant Data Minister Andrew Charlton said earlier this month that data centre developers could invest in gas plants where necessary.

“The government is certainly not anti-gas,” Charlton said. “More important than where that power comes from, I’m focused on the consumers … and I don’t want data centres to be another reason why their power prices are going up.”

Reserve Bank chief economist Sarah Hunter on Thursday said the sheer size of the data centre boom had caught the bank by surprise.

She revealed the RBA is creating a special team to analyse the surge in data centre construction, which some analysts believe is on track to be larger than the early 2010s mining boom. Analysis by Westpac suggests there is already a pipeline for $155 billion worth of projects.

According to Hunter, the companies investing in data centres are keen to get work underway as soon as practicable, which could put pressure on the broader construction sector.

“They’re saying that it’s almost they want it as quick as possible because they just need this capacity in place because it’s so valuable to them,” she told the Barrenjoey economics forum in Sydney.

“This thing didn’t really exist even 18 months ago. The numbers were really, really small, a couple of billion a quarter, this is not to be getting excited about. Now we’re nearly 10-fold higher in some cases.”

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