New regulations and an access scheme
In our recent ‘Big day for data centres’ insight, we discussed the Electricity Infrastructure Investment Amendment Bill 2026 which would expand the access scheme framework developed for renewable energy zones to data centres and allowed for derogations from the National Electricity Rules.
On 17 August 2026 the New South Wales (NSW) Government released:
- the Reforming electricity network connection and cost recovery arrangements for data centres in NSW Consultation Paper proposing 10 reforms in relation to NSW data centres. These proposals would be implemented under the amendment bill (once passed), and
- the NSW Data Centre Guidelines which provides for a data centres complying with the guidelines to have their application assessment process take no longer than 75 days ‘in government hands’. In this alert, we are focussing on the energy connection related elements of the guidelines.
The overall framework provides data centres with a more efficient assessment process and clearer requirements but with the downside of additional costs and regulatory and contractual obligations.
The proposed timings from the consultation paper submission, subsequent regulations and large load access scheme consultation are outlined below the table.
NSW data centres: 10 reform proposals
The 10 proposals are summarised below and further expanded in later sections (plus the large load access scheme framework).
It is proposed to apply the reforms to data centres with rated connection capacity of 15MW or greater.
|
Area
|
Snapshot of proposal or Guideline performance measure
|
|
Improving network connections and planning |
1. Require data centre connection applicants to pay an entry bond (proposed at $30,000/MW). 2. Strengthen requirements for network service providers to collect and share information about prospective and existing data centre connections. 3. Strengthen requirements for network service providers to develop and share information about load forecasts and transfer capacity, and to conduct joint planning for data centres. 4. Require connection agreements with data centres to incorporate demand profiles. These would be binding and excess consumption would be subject to material penalties and persistent under-consumption subject to a ‘negative ratchet’, ie the capacity would be lost.
|
|
Improving network cost allocation and recovery |
5. Require distribution network service providers to recover appropriate transmission network upgrade costs from data centres connecting to distribution networks. 6. Require data centres to guarantee they will pay for the costs of capacity made available to them, regardless of whether they use it (ie a move to ‘take or pay’ charging). 7. Require data centre connection applicants to pay a Major Network Upgrade Fee with a default rate of:
Proposal 5 and 7 appear to overlap. It may be that proposal 5 deals with specific augmentation costs required by a data centre where proposal 7 deals with general acceleration of network augmentations caused by data centres generally. 8. Require transmission-connected data centres to contribute to the costs of jurisdictional schemes. |
|
Supporting implementation of measures in the Guidelines |
9. Require network service providers to use connection agreements to reinforce compliance with requirements to offset demand through power purchase agreements and firming agreements (see performance measure 13 below). 10. Require network service providers to use connection agreements to operationalise and enforce compliance with requirements to reduce load in times of grid stress (see performance measure 9 below). |
|
NSW Data Centre Guidelines – performance measure 9 |
Demonstrate ability to reduce grid-supplied electricity demand by 25% of the data centre forecast average load for up to a 2-hour period (excluding using diesel back up), using the following hierarchy:
Data centres must agree the applicable notice period for reducing grid demand with the relevant electricity utility. AEMO may also instruct data centres to reduce grid demand in accordance with the relevant notice period. |
|
NSW Data Centre Guidelines – performance measure 13 |
Enter into PPAs and firming agreements for additional renewable energy generation assets in NSW to meet data centre demand:
Note on-site or proximate storage provided for demand flexibility can be counted towards the fulfilment of this measure. |
What is the timing of the NSW data centre changes
In terms of timing:
- submissions on the consultation paper are due by 14 September 2026
- Regulations to be made by Q4 2026, and
- consultation on a large load access scheme to commence in late 2026 and continue in the first half of 2027.
NSW data centres: Unpacking the proposals
- The proposal targets speculative and duplicative connection applications by requiring an entry bond of $30,000 per MW of requested capacity at the time of submitting a connection application.
- Bonds would be managed by the Scheme Financial Vehicle (SFV) under the Electricity Infrastructure Act and paid into the Electricity Infrastructure Fund sitting outside of distribution and transmission networks' annual revenue requirements. It would offset the SFV costs which are levied on distribution customers.
- The bond rate is benchmarked against international models, including Texas (US$50,000/MW) and the UK (£237,500–£712,500/MW).
- Bonds would be forfeited if applicants fail to provide required information, do not contact the Network Service Provider (NSP) within a given timeframe, or the NSP has reasonable grounds to believe the applicant is not negotiating in good faith.
- NSPs would be empowered to compel data centres to provide certain information and would be obligated to share it with other NSPs, the AER, AEMO, the EST Monitor, and EnergyCo. This information requirements from new and existing data centres are consistent with those in Minister Bowen’s National Electricity Rule change proposal (Bowen Rule Change) discussed in our recent Big day for data centres’ insight.
- NSPs would be required to prepare load forecasts at least quarterly (and whenever a new connection agreement with a data centre is executed) for each bulk supply point, and share these with other NSPs, AEMO, the EST Monitor, and EnergyCo.
- Transgrid would be required to provide information on actual and forecast transfer capacity at each bulk supply point at least quarterly, plus updates on major network project statuses.
- NSPs would be required to consult each other when a new data centre connection application is received, for the purposes of identifying upstream/downstream network impacts, constraints, accurate cost allocation, and joint planning.
- The paper identifies that data centre ramp rates vary considerably—in some cases over more than a decade and reaching only 50–60% of rated capacity at maturity—creating risk of mistimed or premature network investments.
- Connection agreements would include:
- a demand profile setting out maximum expected demand each year with material penalties for exceedance
- a capacity profile setting out capacity available each year
- a negative ratchet, ie conditions allowing the NSP to adjust rated capacity if actual demand consistently falls well below the demand profile (for example for three years).
- This mitigates risks from uncertain ramp-up rates and the ‘locking up’ of capacity, providing clarity on expected energy usage over time.
- Many data centres are seeking to connect at the sub-transmission level of distribution networks in Greater Sydney, in areas facing transmission network constraints.
- DNSPs would be required to collaborate with TNSPs to identify whether a proposed connection causes the need to augment or extend the transmission network, and ensure charges incorporate and recover those costs. Again, this is consistent with the Bowen Rule Change.
- This is a ‘take or pay’ requirement to address a data centre closing prematurely or using less than their rated capacity, given that network charges are predominantly based on usage rather than capacity. The paper notes that AEMO's 2026 ISP assumes load factors at maturity for hyperscalers will average 68%.
- Implementation could take the form of prudential requirements (bank guarantees, minimum use of system charges, upfront capital contributions) included in connection agreements—for example, guaranteed minimum use of system charges for 10 years.
- Alternatively, use of system charges could be calculated based on connection capacity rather than observed usage.
- Data centre connection applicants to pay a Major Network Upgrade Fee (default $200,000/MW in Sydney-Newcastle-Wollongong; $100,000/MW elsewhere).
- It is levied on rated connection capacity less any ‘flexible’ capacity (capacity the customer agrees not to use at certain times), incentivising flexible connection arrangements.
- The fee would be paid into the EIF immediately prior to execution of a connection agreement.
- The applicable rate will ultimately be determined by the Consumer Trustee based on principles in the regulation; the default rate applies in the interim.
- The fee rate cannot be altered more than once every two years to balance cost-reflectiveness with investor certainty
- Transmission-connected data centres currently do not contribute at all to the NSW Roadmap or Climate Change Fund costs, because it is levied on distributors.
- Transmission-connected data centres would make an annual contribution in a similar fashion to distribution-connected customers, paid into the EIF (for the Roadmap) and Special Deposits Account (for the Climate Change Fund).
- The contribution amount would be calculated based on each data centre's requested capacity as a proportion of total network transfer capacity.
- This complements planning consent conditions by requiring NSPs to include conditions in connection agreements ensuring data centres offset their demand through power purchase agreements (PPAs) in line with the NSW Data Centre Guidelines and the Australian Government's Expectations.
- Connection agreements could stipulate that a data centre may not energise until it has obtained DPHI approval for its Sustainability Management Plan or Greenhouse Gas Mitigation Plan.
- If DPHI becomes aware of non-compliance with PPA requirements that is not remedied, it would advise the relevant NSP, which would then reduce the capacity available to the data centre operator.
- NSPs would be required to include conditions in connection agreements requiring data centres to reduce load by 25% for up to two hours in response to signals from the NSP or AEMO during peak demand and low supply periods.
- Load reduction must follow the hierarchy in the Guidelines: load shifting/curtailment first, then use of onsite or proximate renewable generation/storage; diesel generators cannot be used for load flexibility.
- Triggers for demand flexibility could include wholesale prices exceeding a threshold or system conditions such as low reserve conditions; NSPs and AEMO would also have options to trigger it in additional circumstances reflecting local conditions.
Large load access scheme – 4 key considerations
If passed, the Electricity Infrastructure Investment Amendment Bill 2026 would expand the existing network access scheme framework used to manage generation connections in renewable energy zones. The access scheme is designed to coordinate large loads and supply infrastructure by aligning data centre demand with available network and generation capacity. y.
- Competitive allocation process: Data centres would apply for access, which would be allocated through a competitive process (such as a tender) rather than on a first-come, first-served basis.
- Merit-based criteria: Data centres would compete on a range of social, technical, and financial performance criteria, which could include energy and water efficiency, demand flexibility, and willingness to pay higher connection fees.
- Capacity limits set by system capacity: The scale of connections for large loads would be set based on the capacity of the energy system, with capacity allocated for future years based on planned electricity network projects being delivered (e.g., the Hunter Transmission Project).
- Conditional access rights: Access rights would be conferred with conditions requiring the proponent to deliver the commitments made during the competitive process, and could also be used to enforce compliance with other regulatory requirements.
Establishing the framework would not automatically result in implementation of a scheme, but would provide the Minister with an additional tool should one be required.
If you would like to discuss how these changes impact you existing operations, or investment considerations, please reach out to one of the contacts listed below. The impacts of the bill are discussed in more detail in our previous alert here.
Register your interest to be the first to receive our comprehensive Guide!
14 countries | Regional themes | Regulatory issues - power, water, land, telco, foreign investment, tax, critical infrastructure and security and data localisation.
