Data Centre Myths

 

This blog contains the Myth-buster appendix of my submission to the Parliamentary Inquiry into Data Centres examining claims commonly made in public discussion of data-centre development. It is used here only because it conveniently assembles many of the claims that now recur throughout the public debate.

Many of those claims are economically unsubstantiated, system-level incomplete, commercially optimistic, or inconsistent with the operational realities of Tasmania's electricity system.

Claims about jobs, renewable energy, network benefits, commercial electricity prices and new renewable investment may all contain elements of truth. But each needs to be considered alongside the costs and risks that occur elsewhere in the electricity system.

The principle is simple:

Benefits should not merely sound plausible. Costs should not disappear from the analysis simply because they occur somewhere else. Both should be demonstrated.

These are the ten myths contained  in the recent Mercury Talking Point with is attached below.

Myth 1 — “Help develop a broader artificial intelligence industry in our state.”

Reality: Hyperscale data centres globally create very few jobs and do not, by themselves, create local AI ecosystems. AI industries are built around research capability, universities, talent, data, venture capital and entrepreneurial ecosystems. Data centres are infrastructure assets, not innovation ecosystems. Just as the establishment of call centres in Tasmania did not create a broader communications industry, the presence of server farms alone is unlikely to create a significant AI sector.

Implication: This is economic wishful thinking, not evidence. Using data centres as a foundation for an AI industry misrepresents what is actually required.

Myth 2 — “Our cool climate reduces the energy required for cooling.”

Reality: Cooling costs typically account for only a small proportion of total data-centre operating costs. Even if Tasmania enjoys a modest cooling advantage, the dominant constraint remains access to firm electricity. Hydro's finite firming capability is far more important than cooling efficiency.

Implication: Framing climate as a decisive advantage distracts from the real issue: Hydro’s limited ability to firm large new continuous loads.

Myth 3 — “Our renewable energy is attractive to businesses seeking to reduce their emissions.”

Reality: Data centres increase import reliance, often from fossil generation, when intermittent renewables are not producing. Firming intermittent RE requires Hydro dispatch, reducing storage resilience and increasing drought exposure.

Implication: At system level, large data‑centre loads can worsen emissions outcomes, not improve them.

Myth 4 — “Economic contributions extend to power bills paid by Tasmanian households and businesses.”

Reality: Large new loads require new transmission, firming, and system‑strength assets. These costs are recovered from all customers through regulated charges. Imports rise, Hydro dispatch falls, Hydro revenue falls and Hydro dividends fall. The cost is not eliminated; it is transferred to households, businesses and ultimately the State Budget.

Implication: Data centres structurally increase, not decrease, pressure on household and small‑business electricity bills.

Myth 5 — “Most Tasmanians understand the economic importance of major industrials… data centres are not insignificant.”

Reality: Major industrials produce exports, wages, supply chains, and regional economies. Data centres produce some economic benefits, particularly during construction, but they do not generate exports, supply-chain effects, employment intensity or regional economic activity on anything like the scale of major industrial customers.. The one possibility is to use the generated heat downstream.

Implication: Equating data centres with major industrials is misleading and economically incorrect.

Myth 6 — “They pay substantial network charges and help carry the fixed costs of our transmission system.”

Reality: Existing industrials do help carry fixed costs—but new large loads require new transmission and system‑strength investment, which increases the regulated asset base. Those costs are then shared by all customers.

Implication: New data‑centre loads add new costs; they do not simply “carry” existing ones. The relevant comparison is not between an existing industrial customer and a new data centre. It is between an existing network and the expanded network required to support that new load.

Myth 7 — “Their continued presence can help contain upward pressure on the network component of everyone else’s power bills.”

Reality: When large loads drive new transmission and firming requirements, the network component of bills rises. Imports and reduced Hydro dispatch further increase wholesale prices and fiscal risk.

Implication: The claim that large users contain upward pressure on bills ignores the cost and price effects of new infrastructure and firming obligations.

Myth 8 — “It has an agreement… to pay commercial rates for its electricity… That supports our state‑owned energy businesses and the returns they provide to the state government.”

Reality: “Commercial rates” for large users are negotiated and often below marginal cost. Hydro’s revenue depends on Tasmanian price formation, not just bilateral contracts. Contracts do not change the spot price Hydro receives for its generation. Large continuous loads reduce Hydro’s ability to set the price, reduce Hydro dispatch volumes, increase imports, and weaken Hydro’s profit model — regardless of what contract price the data centre pays.

Implication: Far from strengthening returns, large data‑centre loads can undermine Hydro’s profit model and the State Budget’s reliance on Hydro dividends. Hydro's profitability depends on preserving flexibility and influencing Tasmanian price formation. Large continuous loads consume flexibility regardless of the contract price ultimately paid.

Myth 9 — “Firmus has also committed to fund the transmission infrastructure required to connect its developments.”

Reality: “Fund” typically means a capital contribution, not full cost recovery over the asset’s life. Ongoing regulated returns—interest, depreciation, and operating costs—are recovered from all customers via network charges.

Implication: This is not full cost coverage; it is partial contribution. The long‑term burden still falls on Tasmanian consumers. Capital contributions recover only part of the cost. The regulated asset base continues to attract interest, depreciation and operating costs for decades.

Myth 10 — “More large energy users… create the demand needed to bring forward renewable energy projects.”

Reality: New wind in Tasmania is structurally loss‑making without subsidies or underwriting. WWF’s audited economics show a $35–$37 million per 100 MW annual shortfall. Demand alone does not fix uneconomic project economics. A 500 MW continuous load requires approximately 1,500 MW of installed wind generation. The critical question is not whether demand exists, but who underwrites the generation, who provides the firming, and who carries the risk when the wind is not blowing. In Tasmania, that burden ultimately falls on Hydro Tasmania and therefore on Tasmanians.

Implication: This repeats the Marinus assumption: build infrastructure and “they will come”, but that relies on Hydro and consumers to carry the financial and operational burden.

Summary

Taken individually, each of these claims sounds plausible. Taken together, they reveal a common pattern: benefits are attributed to data centres, while costs, risks and firming obligations are assumed to be absorbed elsewhere. The central question raised throughout this submission is therefore not whether data centres produce benefits, but whether those benefits justify the consumption of Tasmania's scarce firming capability and the resulting impacts on Hydro Tasmania, electricity consumers and the State Budget.

 

 

Attachment: Copy of Talking Point article in The Mercury 11^th September 2026 (annotated version with each of the 10 myths highlighted)

Data centres can help pay the bills. Large power users help carry the costs of our energy system writes Colleen Reardon (CEO of TCCI)

The Tasmanian Chamber of Commerce and Industry (TCCI) has a clear approach to investment in Tasmania: if it will bring new jobs and economic growth, we’ll back it.

 Tasmania currently has an opportunity to accept significant private investment through data centres, and the supporting infrastructure required which will help develop a broader artificial intelligence industry in our state. (Myth 1)

We would be mad to waste it.

Investors have choices. They will invest where there are clear processes, and certainty. They won’t invest where processes are unclear, and clouded by political uncertainty.

Welcoming this investment does not mean ignoring questions about energy and water use, noise, planning, local impacts or ongoing employment. Major developments must be properly assessed and Tasmanians should have clear information about their impacts.

But we should be informed, not misled. The discussion must be based on evidence and recognise the full economic contribution these developments can make.

Tasmania has natural advantages in attracting data centre investment. Our cool climate reduces the energy required for cooling (Myth 2), while our renewable energy is attractive to businesses seeking to reduce their emissions (Myth 3).

The benefits begin before a data centre becomes operational. Construction creates work for Tasmanian contractors and suppliers, while the private capital being invested supports economic activity and confidence.

Sure, the data centres themselves don’t employ as many people as one of our major industrials, but the numbers are not insignificant. Importantly, the construction of data centres also provides the opportunity for us as a state to build a broader native AI industry around them (Myth 1).

For example, as part of their investment in Tasmania, Firmus is underwriting a new undersea fibre-optic cable (Bernacchi-1) linking Tasmania with the mainland, including directly to Sydney. It’s a gamechanger for Tasmania’s broader digital connectivity.

Data centres’ economic contributions also extend to Tasmania’s electricity system – and ultimately to the power bills paid by Tasmanian households and businesses (Myth 4).

Most Tasmanians understand the economic importance of major industrials (Myth 5) such as Bell Bay Aluminium, Nyrstar and Boyer Mill. They support direct and indirect employment, regional activity, local suppliers, skills and export income.

What is less well understood is the role they play in Tasmania’s power prices. As some of the state’s largest electricity customers, they pay substantial network charges and help carry the fixed costs of our transmission system (Myth 6).

Tasmania’s transmission network must be operated, maintained and upgraded regardless of how many customers use it.

While none of us wants it to happen, if a major industrial closes, those transmission costs do not disappear. There is simply one less major customer contributing to them, meaning a greater share may ultimately need to be recovered from other Tasmanian electricity customers – households and small businesses.

That is why the future of our major industrials matters beyond the jobs and economic activity they provide. Their continued presence can also help contain upward pressure on the network component of everyone else’s power bills (Myth 7)

New data centres add more major customers to the system.

Take Firmus, for example. It has an agreement at its Launceston facility to pay commercial rates for its electricity (Myth 8), without a power subsidy, and will spend a significant amount purchasing power in Tasmania. That supports our state-owned energy businesses and the returns they provide to the state government.

Firmus has also committed to fund the transmission infrastructure required to connect its developments (Myth 9). As a major electricity user, it will contribute through ongoing network charges to the shared cost of Tasmania’s transmission system.

Having more large customers sharing the fixed costs of the network can help contain upward pressure on the network component of bills.

That is an important benefit for every Tasmanian electricity customer – and one that has received too little attention.

The other part of the equation is increasing Tasmania’s electricity supply.

More large energy users, like data centres, create the demand needed to bring forward renewable energy projects (Myth 10) and give developers greater confidence to invest.

Tasmania’s objective should be clear: retain our existing major industrials, welcome the new private investment of data centres, and bring forward the renewable generation needed to support both.

 This is an opportunity our state should not allow to go begging.