The offset mandate needs a pipeline. Australia only closed 14 projects last year
The mandate requires offset generation in the state that hosts the data centre. The largest host jurisdiction - New South Wales - only financially committed 530 megawatts in 2025.
The Office of AI is drafting legislation to create a legal obligation for data centres domiciled in Australia:
“To underwrite their own new power supply, pay their full share of connection costs so energy bills are not impacted, reduce power when needed to strengthen the grid, and be as water efficient as possible.”1
The Energy and Climate Change Ministerial Council met in July and discussed data centre energy use at length particularly as AEMO forecast their electricity use will increase to 10% in the NEM by 20502.
At this meeting, ECMC (Federal, NSW, VIC, WA, SA, ACT, TAS energy ministers) with the exception of QLD and NT, agreed to:
“Progress regulatory arrangements to mandate that data centres offset their electricity demand by investing in additional renewable generation located in the jurisdiction where the data centre is located, unless the jurisdiction opts out of this requirement.”3
ECMC agreed, with Qld and NT opposing to:
“Develop NER rule change requests for consideration by ECMC in September.
These rule changes will ensure data centres in the NEM are treated as market participants, demonstrate that they can offset their demand by procuring new renewable generation, adequate firming, and demand flexibility to support the energy grids.”4
Worth noting that an objecting jurisdiction can block a ECMC decision — the Australian Energy Market Agreement requires decisions concerning the NEM to be made by agreement of the ministers representing NEM jurisdictions, with no mechanism to carry a motion over an objection (cl. 4.7(a)).
However ultimately the AEMC decides rule changes, and a request can be lodged without the Council’s agreement. Queensland and the Northern Territory can decline the mandate in their own jurisdictions, and they cannot stop the rule change being pursued.
AirTrunk who has 5 data centres operational and proposed in Sydney and Melbourne – is the first to push back.
Putting their name to it rather than via their industry association, Data Centres Australia, they spoke publicly at the Clean Energy Council Summit saying:
“Struggling renewable energy projects with weak economics and uncommercial pricing assumptions should not expect to be bailed out by booming digital infrastructure.”5
So if governments, regulators and a prominent data centre developer all agree that the role is not to bail out the existing pipeline of renewable generation and storage, what then, precisely is their role in getting additional projects to FID?
The way forward is a data centre can become the creditworthy offtaker to replace government underwriting. A 20-year investment-grade offtake is worth more to a developer’s bankability than a CIS revenue floor.
Which is why AirTrunk’s position is framed as a negotiation not an outright refusal.
What actually reached financial close across Australia in 2025
14 projects totalling 2,300 MW of new utility-scale renewable energy generation capacity was committed in 2025.
To get close to FID, the reality for renewable generation and storage projects in Australia is government has to step in and underwrite the project using the Federal Government Capacity Investment Scheme or the NSW-only Long-Term Energy Service Agreements (LTESAs).
The problem is government underwriting does not guarantee the project reaches FID.
Of the 66 CIS-supported projects, 13 have reached financial close and one is commissioned. And of the LTESA’s 17 projects, 11 have reached FID and commissioning.
Forecasting wholesale electricity prices is nearly impossible when factoring in political uncertainty, slippery coal closure dates, and slow, new generation coming online.
Meanwhile, coal is supressing wholesale prices which alongside rising construction and delivery costs is squeezing the business case for new renewable and storage projects.
This makes FID and PPAs challenging to execute as the buyer is taking all the risk.
And it is becoming increasingly political. For the existing and new renewable generation and storage projects to reach FID, it would need wholesale electricity prices to increase to make the business case stack up. No government or regulator will say that publicly given the energy debate in Australia has shifted from an imperative of reducing emissions to reducing consumer electricity bills.
The ECMC mandate has now become more specific; demanding data centres underwrite generation located in the same jurisdiction
NSW is the largest data centre market in Australia, carrying 16 GW+ of connection enquiries. In 2025 it financially committed five generation projects totalling 530 MW. Victoria, the second largest market, committed 391 MW.
Using the FTB rule of thumb — three megawatts of new generation for every megawatt of load — a single 500 MW campus requires 1,500 MW. That is 2.8 years of everything NSW financially committed in 2025.
So, for AirTrunk seeking to energise SYD3 400 MW and MEL2 353 MW data centres, this would require a combined 2,259 MW of new generation across NSW and Victoria – 99% of all new generation that reached financial close across Australia in 2025.
What this means for investors
Worth looking at three things before legislation is brough to parliament in early 2027.
The definition of “adequate firming.”
If it means diesel gensets and co-located batteries, it is about capex modelled for proven technologies. If it admits gas turbines, which is also a proven technology, then it runs into the well-documented supply constraints from the key global manufacturers such as GE Vernova and Siemens.
Sequencing.
Nothing published states whether the offset generation must be energised before the data centre connects, contracted before it connects, or just ‘committed’. Those three drafting choices are years apart in delivery terms and none of them appears in a base case today.
FTB forecast that data centres will push for committed status as waiting for an energised renewable generation and storage project would add years to the schedule.
What the mandate is silent on: transmission.
Energy ministers have specified generation, firming and demand flexibility, and said nothing about who funds the network that carries any of it. The offset obligation can be satisfied in full but a project may not be able to be connected.
The scarcity is the trade. Fourteen projects reached financial close in Australia last year. Every data centre proponent subject to this mandate will be bidding for the same short list of counterparties - such as Squadron Energy, Tilt Renewables and ACEN – as only a few are capable of getting a project over the line in the right state.
Not investment advice. This article uses public information only and its content is general in nature.
PM press release
Energy and Climate Change Ministerial Council meetings and communiques | energy.gov.au
Ibid
Ibid
AFR: AirTrunk’s Sabooh Whitelaw warns data centres not a blank cheque for renewables