AI data centres: powerhouse or drain?

The southern perimeter of New Zealand’s first mega AI data centre, due to be built within two years, is 3km from Invercargill’s urban boundary, but residents of New Zealand’s southern-most city have not had a say. Thanks to the government smoothing its path, Datagrid’s 49ha data centre and its subsea cable across the Tasman Sea, have been approved without public notification and consultation. Southland Sustainable Resource Coalition chairwoman Kelly Blomfield is organising a public meeting this week and says her group is not anti-AI but concerned on all fronts. “Electricity usage, water usage, air pollution, noise pollution, loss of wetland, pretty much every aspect — yet there is little in the way of reports available from anyone other than Datagrid. “Why has it been a non-notified consent process? “They [the councils] have said our opinions don’t matter, but they are wrong, we are all going to be affected.” She could be right on the electricity usage point, AI data centres consume huge amounts of energy. The government has been encouraging overseas firms to build here, citing New Zealand’s “abundant” green power. Datagrid and the big country’s four gentailers say the move is sparking construction of renewable energy infrastructure. They say it will mean cleaner, cheaper energy for everyone. However, some energy experts worry the scales may tip the other way. Large drains on the grid could cause a worsening electricity shortage despite infrastructure construction. It could compound an existing situation of the grid being topped up by expensive thermal energy made from carbon-emitting fossil fuels and due to pricing systems, ongoing high energy prices for the public. SUPPLIEDKelly Blomfield is concerned about the Datagrid data centre for multiple reasons including energy usage Three years ago, a report by the Overseas Investment Office said Southland District Council had advised Datagrid’s application for resource consent would likely need to be publicly notified, but had been “put on hold”. The land needed for the centre was defined as highly productive. Datagrid was applying to become a Requiring Authority, a status held by New Zealand network utility providers and “wishes to use the designation process in lieu of the land use consent”. The status was granted and Datagrid’s applications to the district council and regional council Environment Southland (ES) proceeded without public notification. ES principal consents officer Stephen West wrote “the scale of the air emissions for back-up generators is unusual within the region”. “As are the circumstances with regard to the drawdown effects on neighbours’ wells . . . However, I don’t consider that these aspects create a special circumstance that should require notification.” Upon being granted approval in March, Datagrid announced its centre will consume 280MW, making it “the country’s second-largest electricity user after the Tiwai Point aluminium smelter”. The smelter, near Bluff, uses 572MW. However, Datagrid chief executive Remi Galasso had trumpeted on social media in 2024 that his firm’s goal is to reach a level of operation requiring nearly twice the smelter’s energy use — 1000MW. The amount could power around 1 million New Zealand homes, the Energy Efficency and Conservation Authority (EECA) confirmed. In May last year, Minister for the South Island James Meager was given a written briefing about Datagrid’s plans by the Ministry of Business, Innovation and Employment (MBIE). “Data centres are extremely energy intensive facilities,” officials wrote. “The proposed data centre is expected to consume . . . 1GW upon completion, almost double the consumption of the Tiwai Point smelter.” The briefing stressed New Zealand Trade and Enterprise (NZTE) had been advocating for New Zealand to be a “green data hub highlighting our abundant renewable energy resources’’. “NZTE believes New Zealand could emulate what Nordic countries have achieved through emphasising their natural advantages and commitment to green energy.” Government agency Invest New Zealand also pitched the country as a data centre location, advertising it as the “green solution” with an “abundance of new, clean energy, a resilient national grid with capacity”. Its report “Data centres as strategic infrastructure” says New Zealand has a “right to win share of the global data centre market” and can provide renewable energy generation to “match” it. In response to questions from the Otago Daily Times, Mr Galasso provided a “media guide” describing his centre as a 300MW AI factory with a “state of the art” battery plus 84, 2.5MW diesel generators for “catastropic, long-term grid emergencies”. The centre would have “no groundwater draw whatsover” and the centre’s construction was “engineered to operate with ultra-low resource consumption while actively strengthening the national power grid.” Datagrid argues that its purchase of long-term gentailer contracts, known as power purchase option agreements (PPOA), will give the energy firms confidence to invest in more renewable energy infrastructure, leading to cheaper power for everyone. “Datagrid provides the commercial certainty needed to green light hundreds of megawatts of new generation. “This influx of clean energy increases total national supply, supporting lower long-term wholesale power costs for everyday Kiwis,” the guide said. The Datagrid battery would also “instantly inject or absorb power to manage voltage stability when sudden surges or drops occur elsewhere on the network”. “This actively makes the grid more resilient and secure for all electricity consumers.” Transpower is responsible for the grid’s transmission network and a spokesperson said Datagrid had applied to connect. An early part of the process was “to assess the technical feasibility of the project”. “This includes whether there is sufficient grid capacity.” Transpower was “working with Datagrid” to understand its battery plan. In March this year, gentailer Mercury agreed a PPOA to supply 140MW to Datagrid for 15 years, half the centre’s initial needs. Mercury chief executive Stew Hamilton said the intention was to “match new demand, so growth from customers like data centres does not come at the expense of supply for the rest of New Zealand”. Deals like Datagrid gave his firm “confidence” to keep investing in renewable electricity and “having more generation in the market also helps build resilience and keeps downward pressure on prices for everyone”. In the Datagrid deal announcement, Mercury pointed to extensions of Mercury’s Ngā Tamariki Geothermal Station near Taupō, the Kaiwera Downs Wind Farm near Gore and a new wind farm called Kaiwaikawe in Northland. The extra energy added by the three projects will be 278MW, double the amount sold to Datagrid, but less than a third of the data centre’s desired end goal. [Missing Credit]Mercury NZ chief executive Stew Hamilton argues the AI data centre helps build more cheap energy for everyone PHOTO: SUPPLIED Mercury says half its power is sold to industry, but its public-facing fact sheets about its renewable infrastructure plans indicate how many homes, not AI data centres, could be fuelled. Mr Hamilton said the expansion of Mahinerangi Wind Farm, 50km outside Dunedin, will contribute another 190MW and he had no concerns about generation firms keeping pace with energy needs. In the first quarter of this year, 94.5% of the nation’s grid was fuelled by renewables. It is a figure that has risen recently, partly due to hydro lakes being high, but there is a flip side: 5.5% was not. Energy demand in New Zealand continues to outstrip supply, meaning there is no excess renewable power sitting around waiting for AI data centres to pop up and use it. Often, there is more demand on the grid than renewable energy can supply and some carbon-emitting, air-polluting and increasingly expensive and scarce thermal power is brought on to the grid, sourced from fossil fuels, including coal and gas burned in the Huntly power station. The thermal power provides firming capacity, meaning a supply of energy that can kick in when there is a dip in other supplies. Proponents of keeping the status quo, rather than entirely decarbonising the grid, often cite hydro lakes running low in “dry years’’, which happened in 2024. As Taranaki gas supplies dwindle, the government is planning a liquified natural gas (LNG) import terminal. In stark contrast to Invest NZ’s messaging, Energy Minister Simeon Brown argued LNG was necessary in an Auckland speech to business leaders last month. “Much of the new renewable energy being built is intermittent by nature and needs a backup for those winters when the lakes are low, the wind is not blowing, the sun is not shining, and geothermal cannot meet peak demand,” Mr Brown said. [Missing Credit]Energy minister Simeon Brown plans to use LNG to firm up power supply Also contrary to government descriptions of New Zealand as a renewable energy haven, gas is still used extensively beyond the grid, through pipes, bottles and huge bulk sales to industry, including fertiliser and dairy industries. In a submission to the Commerce Commission this year, dairy giant Fonterra said switching to alternative energy was “in many cases, impractical and expensive”. The Organisation for Economic Co-operation and Development (OECD) has waded in, warning in a report the LNG plan is not a sensible firming plan as electricity prices are already too high. Use of LNG should be temporary and risks New Zealand “locking in fossil fuel dependence”. Use of thermal power has, so far, contributed to higher energy costs for consumers, due to the grid’s regulated wholesale pricing system, operated by Transpower. Every 30 minutes a spot price is set at the highest price of any energy brought into the grid. When thermal energy is needed, all generation companies get paid the price of the higher-priced thermal energy. “If more expensive thermal generation like coal and gas is needed then all generators will receive higher spot prices and the total cost to the system will be higher,” Transpower said. Victoria University economist Geoff Bertram points out that the wholesale system means gentailers’ commercial interests are served if demand for grid energy continues to outstrip renewables’ supply and thermal energy stays in the mix, elevating the spot price. In an opinion piece last month he said, “cut-price side deals [by gentailers] for aluminium potlines and data centres help to keep the market tight and so prevent Huntly from falling off the margin”. [Missing Credit]Power bills have gone up 20% in two years Consumer NZ says PHOTO: ALLIED MEDIA FILES Consumers are at the end of the chain and have suffered higher energy bills despite a recent drop in wholesale prices, partly due to high hydro lake levels. Consumer NZ is leading a petition to the government to change the spot price system. There had been a “stressful” 20% hike in consumers’ bills over the past two years, its Powerswitch manager Paul Fuge says. Noting the recent wholesale price drop, he urges consumers to use Powerswitch to shop around. If consumers don’t shop around it “reduces the pressure on retailers to cut prices”. He stresses data centres must fund generation required rather than “eating into the capacity”. The gentailer Contact has a decarbonisation strategy, produces most of its energy from renewable sources but also uses gas. In an announcement in January 2025 about continued gas usage, Contact chief executive Mike Fuge echoed Mr Brown. “As more new intermittent renewable generation is built in New Zealand, flexible gas generation remains an important part of the system, keeping the lights on when the sun isn’t shining and wind isn’t blowing,” he said. [Missing Credit]Contact chief executive Mike Fuge supports gas staying in the grid mix PHOTO: ODT SUPPLIES University of Waikato researcher Earl Bardsley is annoyed with Invest NZ for saying the country’s renewable energy is abundant and for comparing it with Norway, which has far more hydro power. If large load projects such as AI data centres were off the cards, LNG imports could be avoided, he says. New Zealand could ward against dry times during high demand by requiring hydro lakes to be full before winter and consenting a hydro storage plan for Lake Onslow, a scheme he has proposed and championed. However, if large AI data centres do arrive it could mean “we are in for trouble because our hydro lakes, even when full, can’t store a lot of energy”. “So if we have a dry winter then the hydro lakes must get drawn down faster to provide green firming power . . . That translates to higher winter wholesale power prices as coal and gas must then kick in.” “I doubt data centres would like to have power from LNG and it would be rather ridiculous for us anyway to import LNG for expensive power for data centres, which would only employ a few people in any case.” The suggestion data centres will “underwrite” power and lower prices was “simply absurd”, he said. Intermittent wind and sun power was “entirely unsuited” to data centres’ constant energy demands and “we do not have a corresponding massive geothermal power development in the pipeline”. [Missing Credit]Waikato researcher Earl Bardsley thinks hydro could provide firming power if there are no AI data centres placing a mega drain on the grid. PHOTO: ODT SUPPLIES Electricity regulator Electricity Authority (EA), which oversees electricity supply in the market, said 31 load projects were coming and 13 were data centres, including Datagrid. It was unable to provide details about the others “due to confidentiality requirements”. The EA had logged 1.78GW required by the 31 projects including 280MW for Datagrid — but not the 1GW it could require. The numbers raise the question whether any of the other load projects will need more power than known. An EA spokesperson said “the authority has not been informed of what its [Datagrid’s] final capacity will be.” Invest NZ said more southern AI data centre locations could include Geraldine, Cromwell, Ohau and Twizel which were in “advantaged data centre zones” with “further renewable energy potential”. On the other side of the energy balance sheet, the EA points to 280 pipelined renewable energy infrastructure projects. However, getting a project consented can take years or not happen, Consumer NZ’s Mr Fuge warns. EA is aware of 25 extra energy generation projects consented so far to produce 4.5GW extra energy for the nation. Eight — all wind and solar projects — are in the South Island and collectively could deliver 857MW, less than the requirement of Datagrid’s 1GW ambition.