Does the “clean energy” claim from data centres being built on the North Shore add up?

One of the key arguments the data centre industry makes to justify its numerous new developments in the North Shore is that the industry runs on clean energy. Is that true?

Data centres use electricity and, in theory, can be run on 100 percent clean energy. The problem is that our electricity grid is not yet clean. 

While around half of the electricity in NSW comes from solar, wind and hydro projects, half  is still powered by coal and gas. Australia is shooting for the grid to be powered by 82 percent renewables by 2030.

In the meantime, if the rate at which data centres are built outpaces the roll-out of new renewable energy, it means more coal and gas burnt. According to projections from the Climate Change Authority, the Australian government’s scientific and economic advisors on how to cut emissions, this is currently what is happening. 

While the issue is particularly pointed in the case of data centres, due to their abnormally large energy demands, the situation affects all large power users: manufacturers, major supermarket chains and even local councils. 

A straightforward solution exists: build the energy you’re going to use. While this can be done in the obvious way — erect a data centre next to a wind farm — these arrangements more commonly come in the form of a Power Purchasing Agreement (PPA). 

What is a PPA? 

A company signs a long-term PPA with an energy producer. 

If a data centre signs one of these agreements with a renewable energy supplier, the supplier could borrow against the guarantee to build a new wind or solar farm, meaning clean energy enters the grid as demand increases.

However, a PPA doesn’t have to involve the construction of a bespoke wind or solar farm, and can use energy sourced from renewable projects already built, which places pressure on the renewable supply.

Is it so simple? 

Critics of this system say a PPA isn’t good enough on its own. A recent report from Greenpeace, authored by Ketan Joshi, argued that companies need to show that they are increasing renewable energy supply to cover their own usage.

Otherwise, he said, “you end up with a false sense of progress”.

“This company comes up and says we're 100 percent renewable … but then you look at it from the perspective of the power grid … you have the wind farm that would have existed anyway, and a whole bunch of new demand from a data centre that they built, which ends up increasing fossil fuel use.”

He gives the example of a PPA deal in April between Amazon’s Australian data centre operations and a wind farm south of Ballarat, which adds no new energy to the overall supply.

What do the experts say?

Jacqueline McKeon, research director at the Business Renewable Centre Australia, said all funding scenarios are complex, but that in essence data centres should be bringing new renewable energy into Australia. 

“There should be an expectation on large energy buyers — particularly data centres — to be going a) 100% renewable, but b) additional. That way, they're really adding value to our grid and investment in renewables.” 

What now?

The government is currently considering data centre regulations. These decisions are being led by a council of all Australian state, territory and federal energy ministers. 

At a speech given on Wednesday evening, Labor’s federal Assistant Minister for Technology, Andrew Charlton, said data centres must bring a “new and clean supply” of energy.