Australia Diversified Utilities: Data centres to be a structural driver of scarcity pricing

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Australia Diversified Utilities: Data centres to be a structural driver of scarcity pricing

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01 Jul 2026 16:53:35 ET │ 29 pages

Australia Diversified Utilities

Data centres to be a structural driver of scarcity pricing

CITI'S TAKE

Tom Wallington AC

Data centre demand is emerging as a structural source of load growth in the +61-282-254-326

NEM, adding pressure to an already finely balanced market and increasing tom.wallington@citi.com

the risk of scarcity-driven price volatility during peak periods. In this note,

we assess the magnitude of DC load growth and the implications for Suraj Nebhani, CFA AC

wholesale power markets, concluding that the opportunity is not fully +61-2-8225-4829

reflected in forward swaps and cap prices. We forecast DC demand to triple suraj.nebhani@citi.com

by FY30 (~25% CAGR), coinciding with coal retirements and a generation

build-out that is increasingly constrained. While near-term earnings face Sumeet Ozarde

headwinds from weaker retail tariff outcomes and milder demand sumeet.ozarde@citi.com

conditions, we expect tightening supply-demand dynamics to support

higher wholesale power prices over time. We trim FY26 earnings and TPs but

retain Buy ratings on AGL and ORG given increasing upside to medium-term

EM earnings and valuation support from a re-rating in power markets.

We believe forward power markets underprice the risks associated with bumpy

energy transition. — Over the past year, forward swaps and cap prices have

softened reflecting benign weather, strong thermal fleet reliability, lower gas prices

and BESS deployment. In our view, markets are pricing these favourable conditions

as sustainable despite increasing risks around adverse weather, ageing generation

assets, and stalling generation and BESS development.