Electricity consumption in parts of Melbourne is expected to double by the end of this decade, thanks to a huge increase in power-hungry data centres, leaving consumers with a $16 billion bill to maintain, upgrade and expand the national grid.
But the Australian Energy Regulator (AER) expects household bills will not rise to cover these internet costs because they will be spread across a range of new customers over the next five years, including data centres.
The regulator made its ruling on Thursday about the revenue Victoria’s pole and cable companies can collect from customers to pay for maintenance and upgrades, reflected as network charges on bills.
In its findings, designed to balance concerns about high consumption against unprecedented demand growth, the regulator approved a $4.8 billion increase over the next five years to $16 billion to help manage a 39 percent increase in electricity demand nationwide.
The increase in demand has been largely driven by household electrification and the growth of large data centers – buildings filled with rows of servers that store and transmit data for online jobs – which require large amounts of power to run and cool.
The largest increase in annual demand is predicted for Jemena’s distribution network covering Melbourne’s north-west suburbs, the center of the city’s data center is increasingwhere the use of electricity is estimated to increase by more than 112.9 percent by the year 2030-31.
Every five years, the private companies that own Victoria’s electricity poles and wires must submit a business plan to the energy regulator outlining how much they believe they will need to spend on maintenance, upgrades and expansion in their distribution areas. The energy regulator then limits how much each company can get from consumers to cover those costs.
However, energy regulator board member Lynne Gallagher said this was the first time the regulator had investigated such a large increase in demand in the five-year observation period in Victoria.
A difficult balancing act, he said, was ensuring enough money to ensure the grid remained stable, while avoiding costing consumers huge extra costs on their bills to invest more — or “gold plating” — in infrastructure that turned out to be unnecessary because projected increases in demand didn’t materialize.
Gallagher said: “Demand has so far been driven by a steady pace of growth in customer connections, but what we have to expect here is that consumers are using less gas and adding electricity or space and hot water. Then you have data center loads that connect first and speed up later.”
“The challenge is: what do you believe and what evidence is in front of you about the pace of change and the pace of demand growth?”
The energy regulator had put the demand forecasts of internet companies under intense scrutiny, Gallagher added. “We have run the governors, had expert advice, and pushed back some of those predictions,” he said.
Internet costs are one of the largest components of home electricity bills, typically making up 40 to 50 percent of what consumers pay. Other factors such as overall energy prices and retail margins also affect the costs borne by homes and small businesses.
Despite the large expenditure required on the internet, the AER suggested that households could avoid a large bill shock being passed on to customers. Instead, it expected the internet portion of people’s bills to drop by between $6 and $38 a year.
This would be achieved because there would be so many new customers using these poles and cables that the costs would be evenly distributed.
However, the regulator has warned this recovery is dependent on supply companies meeting their strong demand growth forecasts.
“The expectation is that the internet component will decline every year for the next five years, but there is uncertainty about that,” Gallagher said.
For example, if demand on Citipower’s network were only 40 percent of current forecasts, annual household bills would be $19 higher by 2031.
In the north-western suburbs of Melbourne, covered by Jemena, the greatest growth in new customers is expected as well as the greatest potential savings in network costs.
The regulator estimated that the average annual residential bill for Jemena customers was set to drop by $189 by 2031, or an average drop of $38 per year over five years.
AER attributes this largely to new industrial users such as data centers coming online, causing the grid’s fixed costs to be spread over larger amounts of energy, reducing costs for everyday households.
The final AER decision for the period 2026 to 2031 allows Jemena to recover $2 billion in revenue from its customers, a 45 percent increase from the current period, regardless of how much energy is used.
If data center growth does not meet projections and energy demand grows only 40 percent of the rate Jemena expects, the standard rebate for residential users will drop from the projected high to a total of just $45 by the end of the five-year period.
The regulator initially questioned Jemena’s data center growth projections, calling them “speculative”, but eventually accepted its revised approach.
Gallagher said electricity demand in the Jemena distribution area is also growing from a low base following the closure of large manufacturing businesses.
“Jemena has never connected large loads in recent history, but now it is a growth path, and to my knowledge they have not yet connected many data centers,” he said. “That’s why we’re seeing that configuration go from low or no load growth to high load growth.”
Industry lobby group Data Centers Australia estimates Melbourne has a pipeline of nine gigawatts of capacity in development. Although many of the projects are in the early stages of planning and are not guaranteed to go ahead, the figure represents the equivalent energy needs of at least 6.75 million households.
Chief executive Belinda Dennett said data center operators had already paid 100 per cent of their connection and network upgrade costs in advance.
“We are happy to see that household taxes will be reduced due to the investment data centers make in the energy infrastructure – $ 10.3 billion until 2030, including $ 1.1 billion that is additional to the needs of the data center and is available for public use,” he said.
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Daniella White is the government politics reporter for The Age. Contact him at da.white@nine.com.auConnect through X or email address.
Nick Toscano is a business reporter for The Age and the Sydney Morning Herald.Connect through X or email address.
