Europe wants to position itself as a leader in AI and compete with the US and China, but experts told CNBC that rising energy prices could undermine that ambition.
The region is moving forward in the AI space by increasing computing capacity and building the critical infrastructure needed for the technology. But data centers are power-hungry, making the investment particularly sensitive to energy costs, and prices have soared in Europe amid the war between the United States and Iran.
Data center projects are likely to move to European regions where electricity costs are lower, creating winners and losers across the continent, experts said.
“The differences in energy costs around the world are going to be very extreme,” Michael Brown, global investment strategist at Franklin Templeton, told CNBC.
“If you’re going to make an energy-intensive investment, you’re going to go where the energy is cheapest. If I were to build my next $7 billion data center, it would be in the United States or China.”
“After the recent Iranian crisis, there is a renewed interest in revitalizing the economy,” Olivier Darmouni, an associate professor at HEC Paris who specializes in energy transition, said in a Tuesday briefing with reporters.
He found that the rapid growth of data centers could increase local electricity costs by 20 to 40 percent in hotly contested areas such as Texas and Virginia in the United States, County Slough in the United Kingdom, and Paris in France.
He said AI is a “wake-up call” for thinking about energy systems as an issue of economic sovereignty. “Affordability and inflation, competitiveness with European companies, and technological leadership in the form of AI – none of these will be available if we don’t improve our energy system.”
Last year, energy-intensive industries in Europe were on average about twice as expensive as in the United States and 50% more expensive than in China or India, according to the International Energy Agency.
Data centers currently consume 2% of the world’s electricity, up from 1.7% in 2024, according to a report released Wednesday by the International Data Centers Authority (IDCA).
IDCA’s report found that once a data center exceeds 5% of a country’s electricity consumption, community and political opposition to the facility typically intensifies, marking a critical tipping point.
According to the report, the US has almost reached the 6% threshold, the UK at 5.8% and Singapore at 19.5%.
Chris Saple, vice chairman of Wood Mackenzie’s power and renewable energy division, told CNBC there are three reasons why Europe is lagging behind in data center development. “One is energy costs, two is the geographic location of the company developing the data center, and three is speed to market, or the time it takes to build and connect the infrastructure.”
All of this makes “Europe a little bit more difficult to develop data centers,” he added.
Although Europe plans to increase its computing power and data centres, Darmouni said the EU faces a major challenge in deciding whether it really wants to take technological leadership in the field of AI.
“You can’t do that without having many, many data centers. Compared to what we’ve seen in Europe, the scale of what we’re seeing in America is like 1:100. Europe is really, really behind. If they want to match what they’re doing in America, they’re going to need a lot more investment.”
loser
“The central part of Europe has already lost the game,” says Vladimir Prodanovich, chief program manager. Nvidiahe said on a panel at a conference held in Denmark in April. He cited high electricity prices in Germany and the UK as an example.
The average electricity price per MW in the UK in May was $111.65, compared to $88.97 in Germany, $44.19 in France and $28 in the US, according to the IEA.
Like the EU, the UK has plans to increase data center capacity, but OpenAI announced last month that it would pause its Stargate project in the country, citing energy costs in part. He also cited the country’s regulatory environment as a cause for concern.
HEC Paris’ Darmouni said he expected pricing to eventually be introduced to AI models as well. In that scenario, customers using Anthropic’s Claude AI, for example, would have to pay more in the UK, he added.
“In the future, many people will be concerned about price discrimination in AI services, and that is likely to be related to energy costs, because that is electricity, which is the marginal cost of providing AI services,” Darmouni said.
winner
Scandinavia and France are often touted as the best countries to benefit from AI investments due to their low electricity prices and diverse energy mix.
“Number one for me right now is Norway. Almost all the big AI companies are there,” Nvidia’s Prodanovic said, adding that companies are also moving to Denmark and Sweden.
microsoft is one of the hyperscalers investing heavily in Northern Europe. The tech giant has partnered with Nscale in a major $6.2 billion contract to build AI infrastructure in Norway. The company plans a $3.2 billion expansion in Sweden and plans to invest $3 billion in data center capacity in Denmark between 2023 and 2027.
Willi Redonvirta, professor of economic sociology and digital studies at the Oxford Internet Institute, says Northern Europeans have become accustomed to cheap electricity prices. He pointed out that in Finland, this means that some winter days lead to negative prices, which means that electricity companies are paying consumers for electricity.
“Consumers have gotten used to this…meaning they can heat up their saunas all day. They’re not only saving money, they’re making money,” he told CNBC.
Darmouni said France has a “huge advantage” when it comes to lowering electricity prices, as it is Europe’s leader in nuclear energy.
But he said lower electricity prices were not the only factor to consider, but also which countries had the appetite to build new power sources.
“What Europe needs is greater integration of transmission, light and storage far beyond its borders, so that energy prices are uniform across locations,” he said.
Darmouni said this integration is difficult in regions such as the UK, Scandinavia, the Iberian Peninsula and Italy due to geography, adding that countries such as France and Germany are more integrated because they are neighbors.
Imbalances between supply and demand also lead to higher development costs. Data center capacity costs in Europe’s five largest markets (Frankfurt, London, Amsterdam, Paris, and Dublin) are expected to rise by 12% in 2026, according to a study by real estate investment firm CBRE.
— CNBC’s Gaelle Legrand contributed to this article.
