A few interesting things on data centres and energy this week – one analysis places data centre demand on the Australian National Electricity Market (NEM) as materially lower than headline figures suggest, Australia hasn’t yet figured out who should pay for it, and Anthropic promises they’ll pay for it for their US data centres.
Most Australian data centre connection requests are phantom demand
Oxford Economics has done useful work estimating how much of the data centre connection pipeline in the NEM will actually translate into grid demand. The answer: roughly 6 out of every 7 MW requested won’t materialise. Of the prospective projects expected to proceed — around 6 GW of capacity — actual grid draw at maturity is estimated at around 2.8 GW, less than half.
The gap has two sources. Nearly 90% comes from projects that simply won’t proceed, i.e. connection requests that won’t materialise. The remaining gap reflects the difference between what a data centre requests and what it actually draws: built-in redundancy, peak-based connection requests rather than average load, and an additional buffer on top. In practice, facilities draw roughly half of their requested capacity.
This matters because AEMO’s forecasts and the Integrated System Plan are necessarily informed by connection request data. If planners treat that pipeline as a reliable proxy for future demand, they risk building infrastructure that gets socialised across all electricity consumers. Connection requests are a leading indicator of investment interest, not a forecast.
Anthropic commits to covering electricity cost impacts
Anthropic, the creator of Claude, published a voluntary commitment to cover electricity cost increases their US data centres impose on other ratepayers. The commitments are substantive: paying 100% of grid upgrade costs that would otherwise be passed to consumers, procuring net-new generation to match consumption, investing in curtailment systems to reduce strain during peak demand, and working with utilities to estimate and cover any residual demand-driven price effects.
Keep in mind that energy costs are a relatively small percentage of training frontier models (around 2-6%, compared to staff costs at 29-49%, chips at 23-32%, server components at 15-22%, and cluster-level interconnect at 9-13%), so wearing all the energy costs of training and inference don’t seem likely to affect the margin much. It’s probably the bare minimum.
For Australia, the direct mechanism doesn’t transfer cleanly. We don’t have the same vertically integrated utility structure, and the AER and AEMC are already working through cost recovery frameworks for large loads. But the underlying question is identical: should data centres pay the full cost of grid upgrades they necessitate, or should those costs be spread across all consumers? In Australia, how connection assets are categorised by the AER significantly affects whether everyday consumers end up subsidising that infrastructure.
Bring-Your-Own tariffs: interesting, but largely a US story
RMI published a useful explainer on “Bring-Your-Own” tariffs — mechanisms that let large electricity users fund new generation themselves in exchange for faster grid access and differentiated rates. The most prominent example is Google’s Clean Transition Tariff in Nevada, where it contracted enhanced geothermal capacity to meet some of its demand. A “Clean Transition Tariff” variant restricts eligible resources to clean energy, turning corporate demand into a driver of new clean firm capacity.
The appeal is intuitive: large loads get speed-to-power, utilities get risk protection, and other ratepayers are insulated from the cost of generation that might otherwise be stranded. In the US context, where data centres are running into multi-year interconnection queues, this solves a real problem.
Australia’s competitive wholesale market and different utility structure make a direct equivalent unlikely. We don’t have the same vertically integrated utilities with integrated resource plans to build alongside. But the underlying principle — that large loads should finance the incremental generation they require, rather than free-riding on existing capacity — is directly relevant to current policy discussions here, and it’s worth watching how the US experiments play out.
The consumer perspective
In a previous role (my views are not necessarily representative… etc. etc.) at Energy Consumers Australia I wrote a piece on how data centre growth could affect household electricity bills. The international evidence is sobering: in Ireland, data centres accounted for 88% of increased electricity demand between 2015 and 2024. In Virginia, unconstrained data centre growth is projected to add $40/month to household bills by 2040. In Australia, network costs already account for nearly half of household electricity bills, and they’re rising.
Data centre load also has implications for non-bulk energy costs such as system strength and frequency control and ancillary services (FCAS). Data centres can shift load rapidly in ways that may not be visible to the Australian Energy Market Operator in real time — illustrated vividly by an incident in Virginia where 60 data centres simultaneously switched to backup power during a grid disturbance, requiring the operator to rapidly curtail generation. If AEMO lacks real-time visibility of data centre demand, ancillary service costs increase and may get recovered broadly. The AEMC is working on rule changes to address this, which is worth watching.