Data Centres

Sections: Overview Project activity Key considerations

Data Centres

Sections: Overview Project activity Key considerations

The increasing demand for cloud services, growth of data-intensive applications such as AI and the need for reliable and secure data storage are driving factors in the expansion of the data centre market in the UK and across Europe.

Damien Gallogly Senior Director, Europe

Overview

The demand for data centres in Europe is expected to grow steadily, reaching around 35 GW by 2030, up from 10 GW in 2023.¹

This increase in demand will lead to a rise in power consumption, with data centres energy use projected to more than double, from around 62 TWh in 2023 to over 150 TWh by the end of the decade.¹

By 2030, data centres are anticipated to account for about 5% of total power usage in Europe, up from 2% today. This growth is primarily driven by hyperscalers and colocation leases, with hyperscalers expected to contribute to 70% of the projected demand by 2028.² However, with new AI models such as DeepSeek offering affordable AI, there is uncertainty in the market about the growth of AI developments and related investments.

On the one hand, lower costs could commoditise AI technology, potentially triggering a surge in adoption and pushing demand even higher. On the other hand, the market remains in flux, with the long-term trajectory still taking shape. In response to escalating infrastructure needs capex-to-revenue ratios which is historically around 10% for major hyperscalers, rose to 12%, underscoring the urgency to scale.³ While some data centre projects in Europe have recently paused, these reflect a broader strategic shift, as capex investments are being realigned to better match evolving demands. Despite the AI momentum, non-AI applications still dominate data centre demand, projected to account for 55% by 2028, growing at a steady 7% CAGR from 2023. Meanwhile, GenAI is emerging as the fastest-growing segment, with training workloads expected to grow at a 30% CAGR and inference demand surging by 122%. At the same time, companies are racing to keep pace with rapid AI advancements.⁴

Amidst this acceleration, power availability has become the most critical constraint facing operators. According to a recent survey by the European Data Centre Association, over 75% of respondents cite power availability as the sector’s biggest challenge over the next three years. While more than half are exploring solutions such as grid stabilisation and energy trading, the race to secure reliable and scalable power continues to intensify.⁵

Project activity

UK

The UK is actively involved in several large-scale projects at various stages. However, grid access delays pose a risk to some of these developments. To address this, Ofgem has proposed a reform to the UK’s grid connection system to accelerate clean energy projects and meet the 2030 Clean Power targets. The current 'first-come, first-served' approach causes delays, with some projects waiting up to a decade. The new system would prioritise ready and essential projects, aiming for the first connections to be operational by 2026. As part of the infrastructure rebound, the UK designated data centres as Critical National Infrastructure (CNI) in September 2024 - the first such designation in a decade - to enhance security, resilience, and energy prioritisation.⁶ This move aligns with reported £14bn in private investment from a number of firms, creating 13,250 jobs, alongside Amazon’s reported £8bn cloud and AI expansion.⁶

Germany

Germany’s data centre market is experiencing robust and sustained growth, with colocation IT capacity set to rise from 1.3 GW to 3.3 GW by 2029. Frankfurt remains at the heart of activity, accounting for a significant share of the current €26bn+ construction pipeline.⁷ However, land and power constraints in the city have prompted operators to expand into the broader Rhein‑Main region, as well as secondary markets such as Berlin and the Rhineland. In line with the German energy efficiency act, 88% of colocation electricity is now sourced from renewables, and 69 % of operators have secured long‑term Power Purchase Agreements to support further green energy adoption.⁷

Ireland

The data centre development landscape in Ireland is experiencing significant growth across multiple regions. Dublin remains the focal point of the country’s data centre sector with numerous projects either in execution, design, or planning stages. However, access to power remains a challenge, and as such alternative power sources are under review by some operators. For example, it is reported that in 2024 Microsoft entered into a corporate power purchase agreement with SSE Renewables and FuturEnergy Ireland to offtake the 30MW output of wind energy capacity via the Lenalea Wind Farm in County Donegal.⁸ Furthermore, a pilot project in Dublin will use green hydrogen fuel cells to power a data centre’s control building.¹⁰ Vantage are also investing over €1bn to develop a multi-phase campus in Dublin with its own on-site power generation.⁹

In Dublin, despite the regulatory and power supply issues, the growth pipeline persists. Interest is growing in the west of Ireland, with the IRIS sea cable development. Despite this momentum, there is a shortage of specialised electrical and MEP skills, impacting project timelines.

France

France leads the UK in the race to build AI data centres, largely due to its significant nuclear power advantage. France operates 57 nuclear reactors with a capacity of 63 GW, compared to the UK’s 9 reactors and 6 GW.¹¹ French state-owned utility EDF has identified grid-connected, ready-to-develop land parcels with the potential to support up to 2 GW power for data centre projects and has recently launched two calls for expressions of interest to attract potential partners.¹² Four sites are being targeted - one in the Île-de-France region and another in the Grand Est region - and two additional sites still being identified, are planned by 2026. This will ensure a more reliable and consistent energy supply, crucial for meeting the growing energy demands of AI development. The land will be allocated based on project criteria, with support and tailored electricity services provided.

Finland and Sweden

With a project value of approximately €17bn(US$19bn), the Nordics account for around 8% of Europe’s total data centre construction pipeline. Helsinki’s data centre market is growing with a focus on sustainability and AI. Key trends include the reuse of waste heat for district heating in Hamina, large-scale facilities in Espoo, Kirkkonummi, and Kajaani, and expanding GPU capacity for AI in regions north of Helsinki.¹⁴ Future growth is expected in Koria and Hamina, reinforcing the region’s position in the data centre industry. In Sweden, Dalarna County is emerging as a significant player with a new initiative to expand a data centre in Falun by 24 MW by the end of 2025.¹⁵ This will operate on 100% renewable energy and reuse excess heat through a combined heat and power system. Despite challenges like power constraints and lengthy permitting processes, Stockholm’s emphasis on renewable energy, waste heat reuse, and sustainability makes it appealing for sustainable data centre development.¹⁵

Spain, Italy and Portugal

Southern Europe, particularly Spain, Italy, and Portugal, are emerging as fast-growing data centre regions, offering strategic connectivity between mainland Europe and North Africa, untapped industrial areas and significant growth potential. Italy is expected to attract over €10bn in data centre investments over the next three years, as leading tech companies expand their infrastructure to support AI and cloud service needs. Spain stood out as Europe’s largest PPA market in 2023, adding 2.77 GW to the grid, and ranks second globally in EY’s Renewable Energy Country Attractiveness Index for corporate PPAs.¹⁵ ¹⁷ Madrid continues to lead as the country's main data centre hub, though development is being curbed in congested areas. Meanwhile, Aragon near Zaragoza is emerging as a hyperscale hotspot, driven by large land availability, power access, and AI-related demand. Portugal is also experiencing significant growth in its data centre sector. Lisbon's data centre market, although still in the early stages, is rapidly expanding, supported by multiple ongoing construction projects. To the south, Sines is emerging as a significant data centre hub, with plans for a large-scale campus powered by renewable energy.

Belgium

Belgium is emerging as a Tier 2 Data centre hub. The Belgian Digital Infrastructure Association (BDIA) anticipates a 50% increase in data centre IT capacity by 2025 and projects the market to reach 261 MW by 2029, with a CAGR of 20.5%. Most data centres are concentrated around the Brussels metropolitan area, accounting for 62% of national data centre floor space. Flanders also hosts a significant share, while Wallonia lags behind with only 4% of IT power.¹³

Key considerations

01 Geopolitical impact

The European data centre market is currently experiencing volatility due to the introduction of new tariffs by the US. These tariffs, affecting a broad range of imports, have raised concerns about potential disruptions in the global supply chain, particularly for technology components essential to data centre operation.

For example, the switchgear supply chain is a globally integrated process involving the sourcing of raw materials like copper, aluminium, and plastics from regions such as Southeast Asia and Latin America. These materials are then transformed into electrical components and assembled across multiple countries including the US to meet regional and international demand. As the situation unfolds, stakeholders are closely monitoring the situation, awaiting clearer insights into how these geopolitical developments will shape the sector's future.

02 Sustainability initiatives

As the industry expands, sustainability and power have become a key focus. For backup power generation, Hydrotreated Vegetable Oil (HVO) is a cleaner alternative to diesel, with its use recently introduced in a new data centre in Oslo, Norway. HVO100, a pure form of HVO made from vegetable or used cooking oil, cuts CO₂ emissions significantly. It is estimated that burning 1,000 litres of HVO produces approximately 195 kg of CO₂, whereas the same volume of conventional diesel emits around 3,600 kg.¹¹

Small modular reactors (SMRs) are being explored as a sustainable power source, as reported in a recent memorandum of understanding between Data4 and Westinghouse Electric Company. The MOU aims to assess the use of AP300 SMRs for powering future data centres in Europe, with the goal of reducing reliance on fossil fuels.¹¹

Liquid cooling technology is gaining traction in Europe. These technologies will feature flexible hybrid cooling systems such as direct liquid-to-chip cooling, energy-efficient low GWP (global warming potential) cooling chillers, and waste heat recovery for district heating. The recent launch of a new liquid cooling lab at a major data centre campus in the London Docklands will feature advanced cooling solutions from four leading technology providers, offering customers the opportunity to explore and test various liquid cooling technologies. The industry will also use low-carbon building materials, minimise steel and concrete usage, and include green spaces and photovoltaic solar panels on the roofs to further promote sustainability.

Interestingly, a reverse logistics programme is being implemented in Dublin that focuses on testing, repairing, and reusing data centre equipment, fostering a circular economy and aiming for zero waste to landfill. These facilities extend the life of hardware, reduce the need for new components, and help conserve raw materials and energy. The programme includes designing reusable rack systems, maintaining operational efficiency, and securely recovering materials from decommissioned hardware.

03 Policy support

The European Commission has revealed plans to invest €1.3bn through its Digital Europe Programme from 2025 to 2027. This funding will be directed towards advancing artificial intelligence (AI), enhancing cybersecurity, and developing digital skills across the continent.¹⁸

Following on from its initial announcement of declaring data centres critical infrastructure, the UK government has established the AI Energy Council, in collaboration with the Secretaries of Technology and Energy, to integrate AI development with clean energy initiatives. It will support AI Growth Zones with up to 500MW of power to attract investment and create local jobs.

France is also actively investing in AI infrastructure, as highlighted by €109bn worth of investments announced in February 2025.¹⁹ Germany is moving forward with its 'Growth Initiative', policy aiming to position the country as a leader in digital and AI technologies. By expanding AI data centres, speeding up approval processes, and improving grid access, Germany is ensuring its data centre sector can meet the ever-growing demands of AI.

Meanwhile, Ireland's Commission for Regulation of Utilities (CRU) has proposed a new electricity connection policy for data centres (large energy users) to address the significant rise in electricity demand. The policy requires data centres to generate or store their own energy on-site or nearby, helping to maintain grid stability. Additionally, data centres must report their renewable energy use and emissions annually, while evaluating locations based on available grid capacity and gathering industry insights to support future growth.²⁰

04 Contractors and labour market challenges

Labour shortages remain one of the top constraints on construction activity across Europe. However, a slight easing has been observed in recent months, primarily due to a slowdown in demand, which is reflective of the labour cost inflation. Despite a general easing in the wider labour market, demand for skilled labour particularly with electrical expertise continues to rise. The data centre sector relies heavily on skilled MEP labour, with electricians in especially high demand.

In Germany alone, more than 18,000 construction electrician positions remained vacant in 2024, with a severe 80% skills gap. Expert-level roles face even deeper shortages.²¹ In the UK, falling apprenticeship rates and a projected shortfall of 15,000 electricians from 2024 to 2029, indicating the talent shortage in the sector.²²

These trends are also echoed in the latest CEDEFOP EU-wide Labour Shortage Index which highlights significant labour shortages, especially among building trade workers, driven largely by skill mismatches. Construction and mining labour also reflect similar struggles in sourcing qualified talent. Countries like Spain, Finland, and Ireland are hit hardest, facing acute shortages fuelled by widening demand-supply gaps.²³

05 Supply chain

The data centre construction industry is facing supply chain challenges, particularly with critical electrical equipment like diesel generators, HV/MV switchgear and HV/MV/LV transformers.

Supply chain constraints can result in extended lead times, especially for specialised or high-demand equipment. This often occurs when essential components are globally sourced, making production susceptible to international shipping delays, trade restrictions, or geopolitical challenges. The reliance on just-in-time (JIT) delivery leaves little room for delays, so developers and general contractors (GCs) are adjusting project schedules to account for potential late deliveries.

Manufacturers may have limited production capacity, especially if they are balancing demand orders across multiple developers or products. Decommitment from the supply chain is a real risk to data centre providers and the backlog across all levels of the supply chain will provide little options for alternatives. Inaccurate demand forecasting can result in either overproduction or underproduction, leading to potential issues like excess inventory, wasted resources, or missed production dates. Developers must prioritise forecasting accuracy and delivering on commitments to stabilise the supply chain.

While the sector has traditionally relied on a relatively small supply chain pool, some developers are now expanding their approach by forming strategic partnerships with a broader range of suppliers, contractors and consultants to ensure quality, consistency, and competitiveness in a challenging market.

Sources

The role of power in unlocking the European AI revolution, McKinsey & Company, October 2024
Energy Consumption in Data Centres and Broadband Communication Networks in the EU, European Commission, February 2024
Accelerated Growth of Digital Services Driving Hyperscale Operators to New Highs, Synergy Research Group, April 2025
Breaking Barriers to Data Center Growth, BCG, January 20, 2025
State of European Data Centres 2025, European Data Centre Association (EUDCA), March 2025
Data centres to be given massive boost and protections from cyber criminals and IT blackouts, Gov.uk, September 2024
Data centre outlook Germany 2024-25, German Datacentre Association
Microsoft signs 30MW wind PPA in Ireland, Data Centre Dynamics Ltd (DCD), May 2024
Vantage plans €1bn Dublin data center campus in Ireland, with on-site power generation, Data Centre Dynamics Ltd (DCD), April 2024
Microsoft launches hydrogen fuel cell pilot at Dublin data center, Data Centre Dynamics Ltd (DCD), September 2024
Nuclear Power in France, World Nuclear Association, February 2025
EDF launches calls for expressions of interest for new data centers in France, EDF Group, March 2025
State of the Belgian Digital Infrastructure 2025, Belgian Digital Infrastructure Association, May 2025
Highly Renewable District Heat for Espoo Utilizing Waste Heat Sources, MDPI, July 2020
NIB finances data centres in Sweden, Nordic Investment Bank, July 2024
EY - Renewable Energy Country Attractive Index
PPA deal tracker, RE-Source Platform,
Digital Europe Programme: EU allocates €1.3bn for critical tech deployment, Innovation News Network, March 2025
France to invest 109 billion euros in AI, Macron announces, The Economic Times, Reuters, Last Updated: February 2025
New Electricity Connection Policy for Data Centres, Commission for Regulation of Utilities, Ireland, February 2025
Annual Review 2024 – Bottlenecks for the energy transition despite a shrinking skills gap, The German Economic Institute (IW), February 2025
New Electrical Apprentice Rates, Electrical Contractors' Association (ECA), May 2024
Cedefop Labour and Skills Shortage Index (CLSSI) (2024)

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