How Europe’s smart rules can turn data centres into green allies

The European Union has fired a warning shot across the bows of the data centre industry. The EU’s Energy Commissioner Dan Jorgensen announced a forthcoming "energy efficiency package" to rein in their escalating electricity consumption, which already accounts for 3 percent of the EU's demand and is set to surge with the expansion of artificial intelligence.

The announcement was scant in detail but signals a clear intent from policymakers to get a handle on a sector quickly becoming a significant energy player. As AI and cloud computing become more integrated into our daily lives, so too the energy required to power the digital infrastructure underpinning them.

However, while the focus on data centre energy consumption is warranted, some experts suggest the narrative of an imminent energy crisis driven by AI might be overblown. To paraphrase the famous comments made by Winston Churchill upon hearing news that he had died, the reports of the data centre’s terminal impact on the power grid may be “greatly exaggerated.”

"Based on the information we have available today – my sense is that narratives typically overestimate the impact data centres will have on future electricity demand."
- Ben McWilliams, Affiliate Fellow at the independent research institute Bruegel

The scale of the challenge

The International Energy Agency projects that global electricity demand from data centres, AI, and cryptocurrencies could more than double by 2030 to roughly 945 terawatt-hours—slightly more than Japan's entire current electricity consumption. Currently, data centres account for approximately 1.5 percent of global electricity consumption, consuming around 415 terawatt-hours annually. This represents growth of roughly 12 percent per year over the past five years, with global investment in data centres nearly doubling since 2022 to reach half a trillion dollars in 2024.

Crucially, the IEA data reveals a stark investment imbalance: the United States is attracting significantly more data centre investment than Europe. This disparity suggests that while the EU frets about energy consumption and prepares regulatory constraints, it may be inadvertently ceding ground in the global AI race. Yet the IEA's analysis suggests that despite this strong increase, data centre electricity demand growth accounts for less than 10% of global electricity demand growth between 2024 and 2030.

Reframing the debate

"That's not to say the consumption is trivial," McWilliams clarifies. He argues that we should reframe our thinking about data centres, viewing them as a new form of "heavy industry," akin to aluminium or ammonia production. These facilities “start from the very positive position that they are fully 'electrified'," he explains. "No process emissions, and no high-temperature heat provided by fossil fuels. The challenge is only to ensure the electrons are clean."

This perspective shifts the focus from solely curbing demand to ensuring supply is green. The challenge then becomes one of decarbonizing the electricity grid that powers these data hubs.

Franz points out that Article 26 now obliges large facilities to utilize waste heat unless it is not technically or economically feasible, and that new demand connection network codes—awaiting implementation—will be decisive for ensuring large-scale digital infrastructures are equipped to stabilize the grid in case of supply challenges.

“This rising demand can help distribute overall energy system and grid costs, potentially resulting in lower tariffs for all consumers. However, accommodating such concentrated and substantial consumption requires reinforcing and upgrading the grid infrastructure to ensure continued stability and reliability.”
- João Martins de Carvalho, Executive Board Member at E-REDES

Smart solutions for smart infrastructure

Looking ahead, McWilliams suggests a more innovative regulatory approach that could see data centres become part of the climate solution. “I think one exciting avenue for policymakers/regulators to look into is how to encourage data centres to follow load,” he says. Not all computational tasks are time-sensitive, and demand-side flexibility could be a game-changer.

Franz highlights that utilities such as E.ON are preparing for the surge in digital infrastructure by planning and facilitating anticipatory investments, digitalizing grid management, and improving customer information. “With over 350 data centre connection requests totaling more than 50 GW on E.ON’s German grids alone, capacity challenges are acute—not just for data centres but also for storage, renewables, and highway electrification,” he says. He stresses that moving beyond the “first come, first served” principle and implementing flexible connection agreements will be crucial to connect more demand more quickly and efficiently.

Carvalho adds that encouraging server farms to locate in areas with existing grid capacity is key, and that while data centres are not typically seen as providers of grid flexibility, there is potential to explore their role—particularly through onsite battery storage systems.

Lessons from recent events

Carvalho’s team at E-REDES recently managed the restoration of power after Portugal’s massive blackout in April, coordinating with operators in Spain and southern France. He warns that “the significant grid capacity required by data centres in concentrated regions can sometimes limit connections for other consumers, such as residential users and small businesses.”

“The Energy Efficiency Directive already provides clear reporting obligations for data centres, with a delegated act published in March 2024.”
- Oliver Franz, Chair of the Distribution and Market Facilitation Committee at Eurelectric and Vice President for European Regulation at E.ON SE

He urges that policies must support balanced grid development, ensuring both large-scale computing hubs and other consumer segments have equitable access.

Franz suggests that “flexible connection agreements fit data centres well, as they rarely use their full requested load from day one.” A “staircase” approach, where additional capacity is allocated as centres demonstrate higher utilization, could help. On-site generation, storage, and participation in flexibility markets can further support decarbonization. “Where technically feasible, data centres should be allowed and encouraged to participate in flexibility markets just like any other asset,” Franz says.

As the European Commission fleshes out its energy efficiency package, the investment gap with the US suggests that overly restrictive regulations could further handicap Europe's position in the global AI competition. While setting standards for energy performance is crucial, fostering an environment where data centres can actively contribute to a flexible and renewable-powered grid could be a far more impactful long-term strategy.