Australia's energy transition has just entered a new phase but most investors haven’t worked that out yet, according to NorthStar portfolio manager Claudia Kwan.
To reach the federal government’s 2035 emissions reduction target of 62 to 70 per cent below 2005 levels, and its pathway to net zero by 2050, Kwan said Australia needs to electrify almost everything.
Deloitte estimates more than $420 billion in additional investment will be required, on top of business as usual spending.
“Data centres are emerging as one of the most important new sources of Australian electricity demand, and the effect is likely to be considerably larger than their current contribution suggests,” Kwan said.
“In addition to the initial capex, they consume electricity almost continuously, have very high load factors and are increasingly power dense.”
The Australian Energy Market Operator's (AEMO) latest 2026 Electricity Statement of Opportunities, published in August 2026, forecasts data centre electricity consumption on the National Electricity Market (NEM) will rise from approximately 5 TWh in FY2025–26 to 34 TWh in FY2035–36.
This is a sevenfold increase in 10 years that takes data centres from about three per cent to 13 per cent of NEM grid-supplied electricity.
Layered on top of that is the weather. Kwan estimates approximately 3 TWh of incremental annual NEM electricity demand from the 2026–27 El Niño event alone, and she doesn’t expect the effect to be temporary.
“Following heatwaves across Europe and a warm winter in Australia, the increased demand for electricity from hotter weather will continue beyond this year’s El Niño,” she said.
This thesis extends well beyond companies directly connected to the grid.
NorthStar has also positioned around thermal management, critical minerals, copper substitutes and water, and each one, Kwan said, traces back to the same root cause.
“Thermal management exists to solve one problem: reducing the heat that data centres generate, because heat drives both the energy and water needs of a facility, and both are now first order cost and growth constraints,” Kwan said.
“Every data centre operator and semiconductor company is actively working on this.
“Water, in our view, is the constraint the market is still under pricing entirely. It has always been treated as a free, abundant commodity, and the way it has been used, reused and treated reflects that assumption," she said.
“That is changing. Water is being repriced, use is being restricted, and decades of under-investment in water infrastructure are becoming visible at the same time as extreme weather events force a rethink of flood risk and water security for both industry and communities.”
The NorthStar Impact Fund was launched in 2017 to offer investors a fund that only invests in companies with solutions to manage social and environmental challenges.