Energy Minister Simeon Brown wants AI data centres underwriting new renewable energy

As the spread of AI data centres ramp ups, debate about whether the new centres should be required to self-fund power generation or draw from the existing grid is turning political heads given the $3 billion large scale centre set to be built near Invercargill.

Recently, concern has been raised about potential water and electricity use by the Singapore-based Datagrid NZ facility, with estimates electricity use at its maximum could reach almost 6% of New Zealand's total usage.

A briefing paper to the South Island Minister James Meager from June last year said the proposed data centre was expected to consume 280 megawatts in phase one, and one gigawatt upon completion, "almost double the consumption of the Tiwai Point New Zealand Aluminium Smelter."

The company is aiming to have the Southland data centre operational by 2028, where it will support high-density IT and AI workloads.

The Green Party, which is calling for a year long pause on data centre consents, estimated that with an initial Datagrid nameplate capacity of 280MW, its percentage at 100% load would be 5.58% of the country's electricity use. 

A spokesperson from Energy Minister Simeon Brown's office provided Electricity Authority estimates that the centre would use only 4.25%, or 1.7 TWh.

They also noted Datagrid had signed a 15-year power purchase agreement with Mercury for 140MW from a wind farm in Gore in March, which would cover about half of the data centre’s energy needs. Mercury NZ acquired a 12.7% stake in Datagrid NZ for $53 million (US$30 million).

Still, Brown said the Government was receiving advice on potential rules around the data centre's energy use.

"AI data centres will be large users of electricity... But the reality is, AI data centres in New Zealand use around 0.6% of New Zealand's power at this stage."

He said in countries such as Ireland the use was significantly higher.

"We want to see AI data centres underwriting new renewable and other investments in energy,' Brown said.

"That's what's really important, is that these data centres are investing in the grid and investing in the the generation that's needed to back them up, and that's by and large what I think we're seeing from some of the proposals coming forward."

He wanted investors to know New Zealand was; "open for businesses, but actually, the rules need to be clear that we want to see that leading to more generation."

Associate Energy Minister Shane Jones said he did not want to; "throw shade on the project, other than to say that all of these projects need to ensure that they don't worsen our electricity supply situation."

He said his party NZ First would have a policy on AI data centres, adding; "but, I've been a consistent doubting Thomas about the net positive impact in the event that we don't have them develop additional sources of energy, because although they may fulfil an important information storage function, they don't actually employ a lot of the lot of people over the long-term."

'Underwriting new generation'

Labour energy spokesperson Megan Woods said their position was that NZ needed to put an obligation on data centres to be underwriting new generation where they set up.

"It's a relatively simple mechanism, so the data centre would have to enter into a power purchase agreement, which would stimulate additional new generation," Woods said.

"The last thing we want to see is more scarcity being put into the electricity system, but if the data centres are actually required to bring on new generation when they set up shop, then you're not seeing that scarcity."

She said there were AI data centre opportunities for NZ, but the settings needed to be right, including the protection of water usage.

'I would be worried more about how the data centre is operating'

University of Auckland electrical engineering Professor Nirmal Nair told interest.co.nz it was likely the large data centre would take longer to build - likely three to four years due to supply chain issues.  "And also it won't be consuming the full load in the first instance anyway... It's only ramping up."

"There are two types of data centres. We already have data centres which are servicing all our current AI needs. what we are talking about as an AI data centre, and which does a lot of training and things like that."

"I would be worried more about how the data centre is operating, how it interacts with the grid, and how our load is going to be done, and so on, before I worry about the energy consumption, which might take some years for us to worry about."

He said it would not be a scenario where overnight the data centre would suck up 6% of the country's electricity use. 

"We've been talking about that for about five, four years."

Once centres are built and with more certainty around the actual electrical load needed, that would give more certainty for renewable energy generators such as solar and wind farms, he said. 

"Because they might think, okay, the existing load is already flat, but this is a new load I need to support."

Earlier this month, Australia rolled out an AI roadmap, with a legal obligation for new large-scale data centres to underwrite new power supply and pay their share of grid connection, so no costs are passed on to homes or businesses. 

Nair called it a "brilliant idea", but said New Zealand may not want to give power to data centres to build power generation of their own choosing.