Business use and energy-hungry AI tipped to drive doubling of power grid demand

Household electricity usage is forecast to almost halve over the next 25 years due to Australia’s booming adoption of rooftop solar panels and batteries, but overall grid demand could double because of businesses’ power usage and energy-hungry data centres.

The Australian Energy Market Operator has modified its 25-year road map for the transition of the power grid to reflect a transformative surge in the number of home battery installations and growing demand for data centres to power AI tools.

There are already more than 600,000 homes around the nation with their own battery systems, allowing them to stash their rooftop solar power during the day and discharge it to power their homes after sunset.

Millions more are expected to install batteries by 2050, which the market operator now says will slash household electricity consumption by 44 per cent, despite homes having more electric appliances and electric vehicles. This would deliver benefits not just for those households, but consumers around the network, by smoothing out sharp increases in wholesale electricity prices that usually occur from about 6pm, when solar output recedes and demand typically spikes.

The updated road map, to be released on Thursday, identifies the growth in household-scale solar and batteries as a key cost-reducing factor for the overall price tag of Australia’s energy transition because it lowers the need for as much grid-scale investment. The report cuts the expected need for the build-out of new transmission links by 1435 kilometres since its previous assessment in 2024.

AEMO chief executive Daniel Westerman said consumers investing in solar and batteries were bringing “real value to the whole grid”.

“We still need transmission – to share the least-cost electricity across the grid – but this means that not so much of it is needed,” he said.

However, other cost pressures have driven a $7 billion increase in the overall energy transition, which is now expected to cost Australia $106 billion by 2050.

Major price pressures continue to loom over the industry due to the immense capital required to modernise the grid, satisfy rising demand and maintain reliability as most of the nation’s coal-fired power plants reach the end of their operating lives around the mid-2030s.

AEMO said the cost blowout would be driven by inflation pushing up the cost of critical projects, especially wind farms and transmission lines. A $3 billion bill will be required to ensure what is known as “system security” .

While household power use is set to decline sharply, demand for power nationwide is expected to double because of business usage and data centres.

Australia is home to 162 operating data centres, which consume about 2 per cent of total electricity demand on the eastern seaboard today. The market operator assumes that could increase fourfold to almost 10 per cent of demand by 2050.

AEMO’s report reaffirms its advice that the best way to transition the energy market and keep people’s electricity bills as low as possible in the future is to develop a mostly renewable grid, supported by more storage, power lines and gas-fired generators.

AEMO said renewable energy was currently supplying almost half the power in the grid and remained the cheapest way to replace Australia’s coal-fired power plants.

“Nearly 40 per cent of the coal fleet has retired, and renewables are fast approaching the milestone of delivering half the annual electricity needs,” it said.

Energy Minister Chris Bowen said unreliable coal-powered plants were driving up power bills.

“That’s why our plan is to deliver more cheaper, cleaner energy, using our sovereign sun and wind energy to shield our grid from global volatility and bring down your bills,” he said.

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