Data centers could boost European power demand by 30%

After 15 years of decline, Europe’s power consumption appears to be picking up again. The reversal is mostly driven by demand from data centers amid a wave of investment in artificial intelligence.

A surge in connection requests received by energy providers suggests that technology companies are planning to build new data centers in Europe.

The emergence of new generative AI models in China, which are reportedly more resource efficient, has raised questions about whether technology companies need to invest as heavily in AI infrastructure. However, if all of these planned data centers are eventually built, they could boost Europe’s overall power consumption by around a third, according to Goldman Sachs Research.

So far, the AI-driven development of new data centers has been highly concentrated in the US, according to a report by Goldman Sachs Research. Alberto Gandolfi, head of the pan-European utilities team for Goldman Sachs Research, believes it's just a matter of time before the momentum spreads to Europe. “It appears to us that big tech has started to develop these facilities in its home market, the US, which accounts for about 50% of its customer base. Europe — accounting for about 25% of revenues for the big tech companies — could be next,” Gandolfi writes in the report.

Gandolfi’s team evaluated new data center connection requests received by power grid operators in major European markets. Assuming similar developments in the rest of Europe, our analysts calculated a pipeline of data centers in construction amounting to around 170 gigawatts (GW), equivalent to about a third of Europe's peak power demand in 2024.

If all these data centers are eventually built, the potential increase in energy demand at peak times in the main EU regions could come to as much as 60%. In practice, though, the team has assumed that only 25-50% of the planned data centers will be built — that number comes from using the completion rate for renewable energy projects as a proxy for an assumed data center completion rate. In this scenario, the team forecasts that Europe’s power consumption could increase by 10-15% in the next 10-15 years.

How much power do data centers consume?

At the moment, the global data center market consumes around 50 GW of power, and only a quarter of that demand is located in Europe.

But that share is likely to increase significantly. “Considering that the new connection requests for data centers were close to zero in 2020-22, the recent developments have been quite impressive,” Gandolfi writes.

In Spain, Germany, Italy, and the UK, the team estimates that the data center pipeline could reach 100 GW by 2030-35. In total, this suggests that new data centers will boost European power demand by 135-225 terawatt hours over the coming decade. (One terawatt hour is a thousand gigawatt hours.)

As it stands, data centers account for just over 2% of power demand in Europe and the US. But that fraction is likely to rise, because AI data centers require far more computing power than traditional data centers.  

Europe is well-positioned to host new data centers

Until now, the development of data centers has been highly concentrated in the US, with northern Virginia hosting about half of the country’s total installations. Plentiful space, cheap energy, and a faster approval process make the US an attractive place for technology companies to build these facilities.

However, Gandolfi believes that, after learning how to develop these facilities in their home market, big US tech companies are likely to start putting that knowledge to use elsewhere. Europe, which accounts for a quarter of big tech revenues, is a natural next step.

Furthermore, the construction process will likely be faster now that technology providers are familiar with the intricacies of building data centers. One US energy provider said that negotiations to sign a power purchase agreement (PPA) with a hyperscaler took around 18 months, for example. “We suspect that the length of this process reflects the need by the big tech majors to learn the ins and outs of power generation activities. As a result, a PPA in Europe is possible — in our view — before the end of 2025,” Gandolfi writes in the report.

Currently, European data centers are mostly concentrated in the FLAP-D region (Frankfurt, London, Amsterdam, Paris, and Dublin). Data centers in this region account for 4,450 megawatts (MW), and a further 4,100 MW is either under construction or in the planning stage.

The Nordic countries and Spain, which have good land availability and abundant green energy resources, could attract more data center investments in the future, Gandolfi writes in the report. But he adds that “we expect large data centers to be developed close to the customer base and in economies with a large share in the service industry,” identifying Germany and the UK as examples of geographies that could potentially meet these criteria.

Could European power demand rebound?

Europe's power consumption has been declining steadily for 15 years. Since 2008, three major episodes have driven a prolonged period of weak consumption: the Global Financial Crisis in 2009, the Covid pandemic in 2020, and the energy crisis in the wake of the Russian invasion of Ukraine in 2022. Germany, which was hit particularly hard by the energy crisis, currently consumes the same amount of electricity as in 1990 — the year of its reunification.

From 1991-2008, European power demand grew at a rate of GDP minus 0.6%, meaning that energy consumption would grow only if real GDP growth exceeded 0.6%. Since the Global Financial Crisis, this rate has changed to GDP minus 1.5%, meaning that energy consumption has been less likely to increase except in years of very strong economic growth.

However, the increase in the number of connection requests to the European power grid indicates that power demand could be on track to bounce back in the coming years.

Given that data centers can take several years to build, the team does not expect this sector to become a driver of European power consumption growth before 2027. But there are signs that power demand is also set to increase in other areas. Requests to connect to Spain’s power grid, for example, have increased from 4 GW in 2020 to around 65 GW currently.

This could help turn around the prospects of the struggling European utilities sector. For 15 years, European utilities have been trading at a discount to their US peers. That gap widened last year, when the S&P 500 Utilities Index rose by around 20%, while the value of European utilities fell by around 5%.

But recent developments in Europe’s energy markets could finally start to improve the prospects of European utilities relative to their American peers, according to Gandolfi. “Inflecting power demand expectations in Europe, improved capital allocation in renewables, the creation of a liquid PPA market in Europe, and bottoming energy prices would support a relative re-rating of European utilities, we believe.”

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