AI’s energy arms race: Who controls the grid, controls the future - can Australia compete?

Is Australia at a crossroads in the global AI power race? Lee Stephens, Executive Chair and Per Tinberg, Managing Director at Meerkat Media take a look at who will power the AI revolution with the global stakes on the rise.

Amidst daily announcements of AI startups and concern about the human cost of AI, it is easy to overlook AI’s current and future impact on communications, commerce and media. The playbook is entirely different to when Rupert Murdoch was able to grow the parochial Adelaide Advertiser into US giant Fox News, to dominate the global news agenda. Today’s race is literally about power. The power required to run the world’s access to data that will inevitably be run by AI, whether it is access via Starlink, what we buy through Amazon or what we watch and read through globalised news and entertainment networks.

Clear signs of the battle to dominate AI through superior power supply are hiding in plain sight. China invested USD$940 billion in renewables in 2024 alone, while also approving over 300 coal-based power stations. The Middle East is planning to triple energy supply in just five years to become a data centre powerhouse, with a multi-billion-dollar commitment by Amazon.

By comparison the Australian Energy Market Operator projects that Australia’s 20 coal-fired power stations will cease operations by 2038.

Big tech’s private energy empires

According to Scope3 research, AI and cloud computing energy consumption, measured by Co2 emissions, already rivals the emissions by the entire global aviation industry. Conservatively AI growth will demand 6% to 10% of the world’s energy production, by 2035. Even now the International Energy Agency estimates the growing energy required by data centres has doubled since 2022. By 2026 the power required will equal Japan’s total annual energy demand of 1,000 terawatts.

Ensuring access to reliable and affordable power is far from a level playing field. The big tech players, Microsoft, Amazon, Google and Meta are already investing hundreds of billions of dollars in shoring up their future energy requirements across both renewable and nuclear power initiatives. Many agreements extending over the next 20 years. The world is entering a future where big tech privately own Small Modular Reactors (SMRs) to power the energy requirements of their global ambitions. As an example, Microsoft has already contracted 34 gigawatts of renewable energy across 24 countries and inked a 20-year power purchase agreement with Constellation Energy to procure 800 megawatts from the recommissioned Three Mile Island nuclear plant in Pennsylvania, USA.

With ‘Clean Nuclear’, a term promoted by the global nuclear power industry, being off the table, Australia faces challenges attracting AI start-ups and big tech investment. Aside from the Amazon AWS commitment to invest over USD$13 billion in renewables and data infrastructure by 2029, there are only a handful of notable investments outside infrastructure upgrades by Microsoft “as required”.

The key issues, unsurprisingly, include power reliability and cost uncertainty around the cost-blowouts and delays in rewiring Australia’s new power economy and simply the completion timeline of 2050. With the Middle East doubling power availability in five years, Indonesia and Vietnam building out coal power and substantial incentives to attract large-scale big tech investment in the near term, Australia is not currently competing in what will be the world’s leading industry and a much-needed source of new sovereign income.

Despite our power led competitive disadvantages there are opportunities for an Australian based AI industry to compete. Australia is among 18 ‘tier one’ countries under new US policy which aims to foster AI development countries aligned with U.S. technology, principles and interests, while restricting the access of advanced AI chips to nations who are not. Meanwhile, local companies are developing world-leading infrastructure to meet the challenges of domestic AI energy constraints.

Local innovation shows promise

Tasmanian-based Firmus has introduced immersion cooling for its AI data centres, using a synthetic liquid in place of traditional air-cooling and is among the most energy efficient in the world. A $2.1 billion ‘AI factory zone’ was announced earlier this month, to be developed in Launceston by Firmus and backed by Tasmania’s renewable energy and represents the largest AI infrastructure investment in Australia to-date.

Not all AI initiatives will succeed, regardless of power availability and massive investment. Today’s AI frenzy has dangerous similarities to the lead up of the Dot.com bust from 1999. Venture capital, particularly in the USA, rushed to join the Dot.com boom with outlandish valuations and poor business models. Corporate casualties and bankruptcies were in the tens of thousands, the NASDAQ fell by 80%, leaving the major big-tech players we know today still standing. They survived by aggregating audiences and discouraging competition for those audiences, which is now playing out in the USA and EU antitrust courts.

The dust is yet to settle on today’s AI boom. Many major initiatives are highly prospective, carry significant execution risk and will fail. Big-tech is attempting to revisit history by outpacing global investment in the data highways that enable AI. By necessity, Australia's AI industry is well placed to develop a competitive advantage in creating AI infrastructure that requires less power, is tailored specifically to renewable energy and can assist fossil fuel reliant countries to more affordably transition to renewables.