AUSTRALIA Law and Practice Contributed by: Alexander Danne, Roy Groom, Rohit Venkat and Georgia Summerhill, Clayton Utz
Data Centre Energy Framework In March 2026, the Federal Government released a national interest framework for data centres and AI infrastructure, establishing expectations that devel- opers must meet to receive priority treatment under federal regulatory assessments. The framework’s cen- tral energy requirement is a “bring your own” (BYO) energy principle: data centre developers are expected to underwrite or develop additional renewable energy generation to match their consumption, internally finance required grid connections and network aug- mentation, and participate in demand flexibility pro- grammes that support grid stability during periods of constraint. Developers that meet these expectations, rather than drawing on existing grid supply and poten- tially increasing electricity costs for other consumers, will be prioritised in approval processes. The BYO energy principle is underpinned by grow- ing industry and community pressure, with a broad coalition of climate groups, unions and clean energy bodies establishing public interest principles requir- ing data centres to be powered by 100% additional renewable energy from the day facilities commence operation. In practice, this is being achieved through long-term PPAs with new renewable generation pro- jects and, in some cases, co-located on-site genera- tion and battery storage. At state level, South Australia has introduced Tech- nical Regulator Guidelines (February 2026) requiring data centres of 100 MW or more to obtain certification covering power system reliability, security and sta- bility, including mandatory backup energy systems and compliance with directions during system stress events. Separately, the AEMC published a draft determination in March 2026 proposing new NER access standards for large inverter-based loads. The rule change, initi- ated by the AEMO, addresses concerns that existing technical customer access standards are inadequate to manage the system security implications of concen- trated, high-demand data centre loads. The proposed standards would require data centres to demonstrate fault-ride-through capability and other technical per- formance standards as a condition of connection.
long-duration storage and firming capacity for the Sydney-Newcastle-Wollongong sub-region. Electricity Services Entry Mechanism The NEM Wholesale Market Settings Review (the Nel- son Review), completed in 2026, recommended the introduction of the Electricity Services Entry Mecha- nism (ESEM) as a permanent successor to the CIS (which is expected to conclude in 2027). The ESEM is designed to address the “tenor gap” problem; a fundamental mismatch between the 15+ year revenue certainty required to finance capital- intensive renewable and storage projects and the one- to seven-year contracting appetite of retailers and commercial customers. Under the proposed model, the ESEM Administrator would conduct competi- tive reverse auctions to procure standardised, trade- able financial derivative contracts from new projects across three service categories: bulk zero-emissions energy, shaping services (time-shifting supply to match demand profiles) and firming services (capable of continuous dispatch for extended periods). Con- tracts would be “warehoused” until sold on to retail- ers and large users, recycling capital and maintaining market-based price signals. All NEM states except Queensland have provided in-principle agreement to the core recommendations, with co-design processes underway throughout 2026. In Western Australia, the reformed Wholesale Electric- ity Market now operates a real-time Essential System Services Market (ESSM), co-optimised with energy dispatch, which procures frequency regulation, con- tingency reserves and other system services previ- ously obtained through administered contracts. Tax Incentives for Renewable Energy Investment As described in 1.3 Foreign Investment Review Process , the 2026–27 Federal Budget introduced a proposed 50% capital gains tax discount for for- eign investors disposing of eligible renewable energy assets under the Treasury Laws Amendment (Foreign Resident CGT Concessions for Renewable Energy) Bill 2026 (Cth), applicable from commencement through to 30 June 2030. This represents a significant shift in Australia’s approach to attracting foreign capital into the energy transition.
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