Data centres: Hungry for power

Characteristics of data centres power consumption

Definition and main components

The EU Code of Conduct on Data Centre Energy Efficiency states that “the term ‘data centres’ includes all buildings, facilities and rooms which contain enterprise servers, server communication equipment, cooling equipment and power equipment, and provide some form of data service”.

Hence, the main physical components of data centres are:

Efficiency metrics: the PUE

The most widely used metric to determine the energy efficiency of a data centre is the PUE (Power Usage Effectiveness). The PUE is defined as the ratio between the total amount of power entering a data centre and the power used to run the IT equipment within it.

Therefore, the lower the PUE is, the higher the efficiency of the data centre. The minimum theoretical value of the PUE is 1, which means that all the power consumed by the facility was used by the IT equipment, which is of course unrealistic as cooling, power transmission losses and the other ancillary services also require power.

At the global level, the average PUE has decreased from 2.5 in 2007 to a current average of 1.56. In Europe, values are in line with the rest of the world, with the latest data showing an average PUE of 1.6 in 2023. However, data centres in Northern and Central Europe have, on average, PUEs that are 10-15% lower than the facilities located in Southern Europe, because of the different temperature conditions.

After the rapid improvements between 2007 and 2014, the energy efficiency of data centres seems to have reached a saturation point, with an average PUE around 1.6. However, new facilities consistently achieve a PUE of 1.3 – and sometimes much better. Google, which can boast state-of-the-art and highly efficient data centres, reported a global average PUE of 1.09 for its facilities over the last year, with some data centres attaining a PUE as low as 1.07.

The “Climate Neutral Data Centre Pact” – a pledge of industry players, supported by the European Commission – has set an annual PUE target of 1.3 and 1.4 (depending on the climate) by 2025 for new data centres and by 2030 for existing facilities. In Germany, the Energy Efficiency Act requires existing data centres to achieve a PUE of 1.5 from July 2027 and 1.3 from 2030. Also, new data centres starting their operation from 2026 onwards must achieve a PUE of 1.2.

Utilisation rates and profiles

Data centres are capital intensive, which incentivises resource optimisation, a high utilisation rate and a flat and consistent load. However, as we will explain later, the specific data centre function (i.e., computation-focused vs storage-focused) and nature (cloud vs on-premises), as well as the uncertain evolution of AI technology, have an impact on the IT workload of the facilities, and, in turn, on their power consumption profile.

Currently, data centres show an average load factor as high as around 80-90%, being mostly baseload facilities with a relatively flat demand throughout the year, in line with baseload computing needs. The main seasonal component comes from the cooling demand, which is temperature dependent (the higher the external temperature, the higher the cooling need).

However, the share of the cooling demand among the total data centre consumption has shrunk significantly over the last couple of decades, driven by the development in the cooling systems and server technologies, as shown by the improvements in the average PUE. It is logical to expect this trend to continue, which will result in reduced seasonality of data centres demand, as well as in a reduced importance of the climate of the facilities’ location.

As for the daily profile, the demand curve is generally flat, with slightly higher demand during day hours, driven by business utilisation. Again, the future load profile will be impacted by the evolution of the technology. For example, AI model training has a flat load, while AI inference is highly dependent on usage time and type (e.g., personal vs business applications), which would result in a spikier load.

Power demand from data centres in Europe: the current state

Number of data centres

Latest estimates indicate that Europe (including EU27, United Kingdom, Switzerland, and Norway) hosts between 2,000 and 3,000 data centres, even though official statistics are not available.

Germany is the country with the largest number of data centres (about 450 facilities), followed by the United Kingdom (~400), France (~250), and the Netherlands (~250). These four countries together currently account for over half of the total number of European data centres.

Data centres are not spread evenly across national territories but are concentrated in metropolitan areas. Indeed, the FLAP-D market – acronym of Frankfurt, London, Amsterdam, Paris, and Dublin (the latter was added later to the group) – accounts for over 20% of the total number of data centres in Europe. The share covered by large cities goes above 25% if we also include Milan, Madrid, and Berlin.

By considering the capacity of the data centres – which is currently estimated at 9.2GW at the European level – the picture becomes even more extreme, with the FLAP-D market currently hosting the largest facilities in terms of MW. Of course, this has an impact on the geographical distribution of power demand, as we shall see in the following section.

Power demand from data centres

To date, there are a lack of official statistics on the electricity consumption from the data centre sector, both at national and regional level. In this section, we aim to provide a comprehensive estimate – based on a combination of several sources and statistics – of the electricity consumption from data centres in 2024 in Europe, with national granularity. We developed a consistent bottom-up methodology, for all countries, to have comparable numbers and a full picture at the European level.

Overall, we estimate the European power demand from data centres in 2024 at 96TWh, which represents around 3.1% of the total demand. The first 5 countries in terms of consumption – namely Germany, Great Britain, France, the Netherlands, and Ireland – account for about 62% of the total data centre demand in Europe. This highlights once again the high degree of market concentration in the FLAP-D regions.

With almost 21TWh, Germany is the country with the largest consumption, followed by the UK (13TWh) and France (11TWh). This is not surprising, given the size of these countries, with the data centre demand accounting for around 3-5% of the total national demand. On the other hand, the Netherlands and Ireland stand out as data centres account for as much as 7% and 18% of the national consumption, respectively.

At the other end of the spectrum, countries such as Italy, Austria, Poland, and Spain, despite being populous nations, show a marginal share of data centre demand at about 2% – below the continental average. However, as we shall see later, the trend is changing for some of these countries.

In this section we highlight the core drivers for data centres in Europe, which help to determine the anticipated patterns of data centre activity and power demand across countries. Each of the drivers was used by ICIS in building the forecasts provided in the previous section.

Temperatures

As highlighted in the first section of this report, data centres require significant amounts of energy to cool systems, thereby preventing them from overheating and failing. There have been examples of temperatures causing problems for data centres, with facilities used by Google and Oracle in London experiencing outages in July 2022 as a heatwave led to failure of the cooling systems.

Besides the risk of failure, data centre operators are incentivised to try to keep cooling costs as low as possible as they can represent a substantial share of a facility’s total costs. Cooler climates provide substantial benefits to data centres as they reduce the need for artificial cooling systems.

Data centres seek to take advantage of ‘free air cooling’ for as much of the time as possible, whereby the outside temperature is below the temperature within the IT rooms.

The desire for free cooling has been a major growth driver of data centres in the Nordics as the favourable climatic conditions in the region mean that free cooling can be used for up to 95% of the time. This means that the costs to cool data centres are substantially lower in the Nordics compared to other European regions with higher average temperatures.

Cooling systems also require substantial amounts of water, which poses a threat to the build-out of data centres in European countries that face considerable challenges with drought, such as Spain and Greece.

Power prices

While lower temperatures can help to reduce the costs of data centres, they inevitably still face considerable power requirements, not only for cooling, but also for the IT equipment and the electrical and ancillary equipment.

It is therefore unsurprising that a country’s power prices are an important driver of data centre growth. Along with lower temperatures, low power prices have been an important factor in the expansion of data centres in the Nordic region and will continue to be so in the coming decade as the region’s abundant hydropower will help to keep prices supressed.  

The rapid expansion of solar and wind capacity in Spain and Portugal is likely to pressure down prices in these markets in the coming ten years, with Spain already showing signs of becoming a growth market for data centres.

Countries with a substantial share of nuclear within their fuel mix are also expected to see a price advantage to 2035, including France and Slovakia. At the other end, the combination of rising carbon prices and a comparatively slow renewable expansion is expected to mean that Italy and Poland will be the highest cost power markets in Europe over the next decade.

It is important to note that wholesale prices are not the only metric when considering the impact of power prices; industrial power prices are also relevant, which includes the impact of taxes and other protections. These were also taken into consideration in building the forecast.

Renewable availability

Renewable availability is crucial to the development of data centres in Europe as owners increasingly look to ensure that their facilities can be considered ‘green’, as well as trying to reduce their costs given the lower power prices engendered by renewable generation.

Data centre operators are already at the forefront of the burgeoning corporate power purchase agreement (PPA) market, with Amazon (1), Google (3), Microsoft (6) and Meta (7) all among the top ten buyers for corporate PPAs signed in Europe to date, according to the ICIS PPA database.

ICIS projects that three European markets (Norway, Lithuania and Austria) will have a renewable share of demand that exceeds 100%, on average, over the next decade, while a further 7 countries are forecast to have shares exceeding 80%.

Along with the temperature and power price advantages, the high renewable shares in Norway and Denmark will continue to make these countries attractive locations for data centres in the coming decade. Ireland, which currently has a renewable share of demand close to the European average, is due to see rapid expansion in the next ten years as the country builds out its offshore wind capacity.

Although the renewable share of demand is a key driver, it is also important to consider the total amount of renewable generation in each location since this points to the absolute availability of renewables that can be contracted to data centres via PPAs. Here, Germany is forecast to be far ahead of all other European countries in the next decade due to its size and ambitious targets, followed by Spain, Great Britain, France and Norway.

Power demand

Power demand correlates closely with population size, which itself can be considered an important driver of data centre activity both at present and projecting forward through the next decade. As the most populous countries in Europe, Germany, GB, France, Italy and Spain can all be expected to see rising data centre demand to 2035.

However, given that data centres are extremely power intensive, electricity demand is also a direct driver for data centre expansion. Countries with higher overall demand levels have more potential for accommodating data centre growth before the additional demand created by the data centres becomes prohibitive to the overall power sector.  

This is a problem that is already being experienced by Ireland, where data centres accounted for 21% of the total metred power consumption in 2023. Ireland has already reached a saturation point for data centres, with development needing to slow down compared to the trajectory of the past four years, while Denmark faces the same threat over the coming decade given its relatively low overall power demand level.

GDP per capita

Gross domestic product (GDP) per capita is a core indicator of economic performance. Countries with a higher GDP per capita are able to invest more into infrastructure, education, and research and development, which can help to engender further economic growth.

Having a high GDP per capita will tend to make a country more attractive to foreign investment as it points to a stable economy and a high likelihood of a well-educated workforce.

It is unsurprising that a ranking of GDP per capita in Europe correlates closely with a ranking of data centre demand per capita, with Ireland, Norway and Denmark among the leading countries. The data on GDP per capita shows a clear regional split, with Western Europe and the Nordics towards the top end, while Eastern and Southern European countries are towards the bottom. The same split can largely be seen in the forecasts for data centre growth over the coming decade.

Corporate tax rates

A low corporate tax rate of 12.5% has been a crucial driver behind Ireland’s rise in recent years to become a major hub of data centres in Europe. The low rate has helped to incentivise multinationals like Amazon, Google and Meta to base their headquarters in Ireland.

Across the 28 European countries included in this report, the average corporate tax rate in 2023 was 19.8%, while the global average was 23%, which highlights the significant advantage that the Irish rate provides to large companies when deciding where to locate their activities.

However, the impact of corporate tax rates should not be overstated as taken alone they cannot account for the patterns seen in European data centres. For instance, Hungary and Bulgaria had lower rates than Ireland in 2023 (at 9% and 10%, respectively), yet these two countries have very minimal data centre activity at present and very little future capacity planned. At the other end, the country with the highest corporate tax rate in Europe is Germany, which has the largest number of data centres.

Moreover, in an attempt to stop a race to the bottom on corporate tax rates, all EU countries, plus the UK, Norway, Australia, South Korea, Japan and Canada agreed to apply a minimum tax rate of 15% from 1 January 2024, which marginally reduces Ireland’s advantage going forward.

It should also be noted that other forms of tax incentives outside of the corporate tax rate can be important in inducing large companies to locate in a specific region. For example, France offers tax incentives of up to 30% for research and development.

Political and business stability

Political stability is always an important consideration for where to locate a data centre as operators will not want to build facilities in places of conflict or turbulence. This can include domestic political instability, such as regular changes of government or interference into a country’s regulatory regime.

However, it can also include geopolitical instability. For instance, while the Baltic markets could be considered desirable data centre locations based on climate and renewable availability considerations, the ongoing concern over Russian aggression is likely to severely limit their attractiveness for data centre operators in the coming years.

The business environment is also critical to data centre operations with a high ease of doing business ranking indicating that a country has a regulatory environment that is more conductive to the starting and operation of a company. This includes factors such as dealing with construction permits, getting credit, paying taxes, and protecting minority investors.

Countries can also implement specific legislation that makes them more or less attractive to potential data centre operators. For instance, in September 2024 the UK government announced that data centres would be classed as ‘Critical National Infrastructure’, which means that data centres would be less likely to be compromised during outages, poor weather conditions or cyber-attacks.

Total internet usage

As internet usage increases, so does the demand for data services. Already in Europe, around 90% of the population frequently use the internet, though this figure is expected to continue increasing over the coming decade, especially in Eastern Europe where frequent usage is still below 85% in most countries.

In addition to more people using the internet, the amount of usage is forecast to expand to 2035 as online services, social media, streaming services, e-commerce and mobile applications all become more popular. Mobile internet usage in particular has surged in popularity in recent years, with more than 90% of people across many EU countries connecting to the internet via their mobile phone in 2023.

E-commerce continues to increase in popularity, with 70% of EU citizens ordering goods or services via the internet in 2023, up from 56% in 2018. The same applies to streaming services, with 72% of internet users in the EU watching internet-streamed TV or videos in 2022.

This growing internet usage across Europe will continue to drive the demand for data centres and this will have a direct impact on their locational distribution due to the need of minimising latency requirements: the higher the density of internet usage in certain areas the higher the need for data centres in that area.

The rapid rise of data centres in recent years has begun to have a notable impact on European electricity markets given the power-hungry nature of the facilities. ICIS calculates that in 2024, demand from data centres will account for 96TWh, or 3.1% of total power demand within Europe.

Yet, we are only at the beginning of an impending boom, with further rapid expansion expected in the coming decade, driven by the combination of exponential growth in the amount of data produced and the rise of artificial intelligence. ICIS projects that by 2035, data centre power demand will have risen to 236TWh, or 5.7% of the total European power demand by that year.

The explosion in data centre power demand will not be evenly distributed across countries as the owners of such facilities will seek out locations that provide the greatest advantages in terms of the cost and availability of clean power, as well as the broader economic, business and political environment.

We project that Germany, France, and the UK will be the largest data centre power demand markets over the coming decade due primarily to their size and economic advantages. However, there are smaller markets that will continue to be data centre hot spots in the coming decade due to either their power market and climate advantages (the Nordics) or their business environment (Ireland). These markets will even reach a level of saturation whereby data centre growth is forced to slow down due to their adverse impact on the power grid. New data centre markets such as Spain are also likely to emerge in the coming years due to locational and power market advantages.

While trends in the next 4-5 years are comparatively straightforward to predict, developments from the latter part of the decade onwards present a high degree of uncertainty. This is due to the difficulty in predicting the impact of technological developments, with advances in AI and quantum computing possessing the potential to up-end the dynamics of the market as we currently know them.

What is certain is that data centres will continue to expand at a rapid rate, with consequences for power prices, emissions reduction targets and security of supply across European power markets.