Australia's new mandatory guidelines for data center developments that were set out in the consultation paper just released by the Federal Government heavily referenced the need for data centers to build their social licence to operate.

When it comes to energy, they could equally have spoken about the need for data centers to be good grid citizens.

It’s a concept that has been floating around the energy and data center industries overseas for some time now, and it’s timely that we start to look at how it should apply here in Australia.

It’s a simple but effective concept, basically that energy customers – particularly large ones – need to look at how they can contribute to or service the electricity grid, rather than just be serviced by it.

How can big energy consumers make a greater contribution to energy systems and the communities they serve, while also drawing a benefit from it?

In Australia, it has become more relevant as distributed energy resources and large-scale intermittent renewables have grown, and the grid has become a system where energy flows both ways.

And more recently, with the advent of the unprecedented massive growth of big energy-using data centers.

This was brought home on the eve of the national cabinet meeting, when the Australian Energy Market Operator released its updated forecasts for future data centre energy use.

Only last year, it forecast data center energy demand in Australia would reach 34 terawatt hours by around 2050.

However, its recent forecast now says that mark will be reached in 2036, when data centers will make up about 13 percent of all electricity consumption across the country.

It’s now suggesting that data center energy consumption will increase sevenfold by 2050.

So, what does being a good grid citizen mean for data centers in Australia? There are five key issues here:

• Making sure the huge energy demands of data centers do not push up energy prices for everyone else.
• Ensuring they don’t create energy supply shortages, particularly at peak times.
• Protecting grid stability and enhancing grid resilience.
• Not creating congestion and strain on the grid connection processes; and lastly
• Contributing to Australia’s renewable energy and Net Zero targets, rather than drawing down on them.

The federal mandatory guidelines for data center development are a very good platform to address these issues.

The guidelines state that data center operators are expected to bring their own new and additional renewable energy generation for their developments.

They would need to surrender verified certificates to show this and ensure it's backed by firm capacity – preferably batteries, but also gas or diesel generation as well as hydrogen power generators.

These measures should help keep pressure off wholesale energy costs, help meet demand and better manage system peaks, and reduce impacts on greenhouse gas emissions from electricity generation.

A last-minute deal for some states to use their own existing coal and gas generators may complicate this. But in practice it also may not be a major issue.

The other significant item in the guidelines is slightly more complicated but is an equally important initiative to help data centers show they are good grid citizens.

Data centers are being told they must be flexible in their energy requirements, be available for demand response as a registered market participant, and look for ways to support grid stability and resilience.

This could involve integrating battery energy storage systems, installing behind-the-meter generation, and providing grid-support services when the system is under stress.

It could also encourage data centers to help unlock greater utilization of existing network infrastructure.

With sophisticated energy management systems and flexible load profiles, data centers can help absorb excess renewable generation, smooth demand patterns and create more efficient use of assets that would otherwise remain underutilized.

They can become an asset for the electricity grid, not a liability – ultimately helping to keep the lights on in communities and keeping downward pressure on wholesale energy prices and network costs.

And some states like New South Wales have even gone a few steps further with a data center framework that encourages data centers to take more wind generation and other initiatives, in exchange for a fast-tracked approval process.

The Australian Energy Market Commission and the Federal Government are also pursuing other changes that will help data centers claim their good grid citizenship.

They are aimed squarely at data centers, but also other new developments that create a large load on the electricity network. The intent is to make sure they cover the costs of connecting to the electricity grid and bear the risks this might create.

These new guidelines, rule changes and measures create an opportunity to redefine the role of data centers in the energy system.