Why data centres need firming power and what that actually means in the NEM
Does a data centre rely on the NEM to deliver firming capability post 2029 especially with the investment challenges facing gas generation, or take matters into their own hands and co-locate or bring firming behind-the-meter?
Why a data centre cannot run on renewables alone
Data centres require continuous, uninterrupted power supply.
Solar and wind are intermittent by definition and neither can guarantee the flat, continuous load profile a data centre requires.
Developers can point to a solar and wind PPA and describe the facility as being powered by renewables but it is not the whole story. On a winter’s night, when solar irradiance is zero, and the wind has abated – data centres still require its large load served in full.
Without firming sitting behind that renewable generation PPA the grid is carrying that obligation – and that position is to be challenged once Eraring exits the energy system on 30 April 2029.
What constitutes firming power?
There is no single, statutory definition of ‘firming’ in the National Electricity Rules.
AEMO’s Integrated System Plan describes that in lieu of coal, firming can be derived from storage – batteries and pumped hydro - and gas. These technologies help maintain grid stability and inertia, smooth out volatile frequency and balance out fast changes in supply and demand. Gas generation also provides back-up supply during long periods of ‘dark and still’ renewable droughts and times of extreme peak demand, particularly in winter. (p.65 2024 ISP).
Storage is categorised by AEMO as:
Shallow: grid-connected storage to dispatch electricity for less than four hours
Medium: grid-connected storage to dispatch electricity for four to 12 hours.
Deep: strategic reserves that can dispatch electricity for more than 12 hours, to shift energy over weeks or months or cover renewable droughts – such as pumped hydro.
The problem with batteries is they have a relatively short operational lifespan of 20 years. So the batteries installed during the 2020s will need replacing in the 2040s, ideally not like-for-like, instead with medium or deep storage.
AEMO’s need for gas
What perhaps receives little attention given it is inconvenient for the transition is AEMO backs in gas: ‘electricity from gas-powered generation is forecast to continue its important role in the NEM. After coal retires, gas will be needed to support energy supply during periods of renewable drought’.
The NEM is forecast to need 14 GW of gas-powered generation (Draft 2026 ISP) to ensure the NEM remains resilient under a range of power system and extreme weather events.
To meet the 14 GW target, 11 GW of new gas generation will need to be built to accommodate a number of plants retiring as they reach end of life.
The role of gas is to be a backup for renewable generation and storage, as the cost of gas makes it more expensive option for everyday use. Newer flexible generators can be regularly switched on to serve that back-up role, and can also operate with a clutch to provide critical system security services. (Draft 2026 ISP).
This is for a ‘strategic reserve’ for power system reliability and security, so is not forecast to run frequently. A typical gas generator may generate just 5-7% of its annual potential – an intriguing commercial proposition. A gas power station running at 5% of the time cannot recover its capex from energy sales and instead survives on capacity payments – which a data centre could potentially be funding.
AEMO is unsure how gas investment is to proceed. It models a potential projection of:
2 regasification terminals in south-east Australia and associated pipeline (specific locations undisclosed)
Expansions to the existing east-coast gas pipeline network to transport gas to where it is required
New seasonal gas storages
New supplies of existing and additional processing plants.
If investment does not fulfill the above, existing gas power stations will need to rely upon diesel backup fuels and on-site fuel storages for continuity.
Where to get firming power as a data centre developer
1. Continue to run diesel back up gensets.
Data centres already have diesel backup generators on site as standard, sized to full load which is functionally behind-the-meter firming power. However, this will likely change as regulators push to mandate data centres to use renewables plus storage for its load. For instance, the 8 May 2026 ECMC Communique agreed (all ministers except Queensland) that data centres in the NEM and WEM should invest in additional renewable generation and firming to fully offset their electricity demand and provide demand flexibility services to avoid additional costs being borne by other energy users.
Likely pathway 2026 to 2027.
2. PPAs with existing gas and hydro assets
This is the path of least resistance – no planning approval, no capex outlay, counterparty takes the fuel risk. However the data centre developer will be competing for supply and it only offers firming on someone else’s terms.
EnergyAustralia’s Marulan Gas Power Station planned upgraded capacity to 1.43GW by 2032 is a clear signal this could be the short to medium term option for data centres following Eraring exit in 2029.
Likely pathway 2026 to 2029+.
Below are the current options for a firming PPA:
3. On-site battery storage
Offers a method to manage short-duration gaps, reduce peak demand draw and provide grid stability services that regulators are increasingly expecting from large loads.
It is likely government will mandate on-site storage to be co-located with data centre builds.
Available now onwards.
4. Co-locate with an existing coal, hydro or gas-fired power station
Option for data centres is to co-locate with an existing coal-fired power station, hydro or gas-fired power station to unlock firming capacity requirement. This has the advantage of accessing existing high-voltage switchyard and transmission infrastructure already in place.
Constraint is the Commonwealth Government now expects new data centres to fully offset their demand through investment in renewables and storage, which limits how far co-location with coal and gas can be pointed at the load.
Available now onwards.
5. Behind-the-meter gas generation
A captive gas peaker removes the dependence on gid firming availability entirely, especially with the sequencing risks that could occur following Eraring, the largest coal-fired power station in the NEM. This is the most capital intensive, dependent on fuel supply and planning approval.
Likely pathway 2029 onwards.
So is a data centre funding the capacity payments for a gas or hydro PPA? Or is it actually more in the long term interests to begin to de-risk and start the planning approvals now for a generation asset that can be fully controlled by the data centre behind-the-meter.