Some of the contents of this article were first discussed at a seminar and panel discussion titled ‘Data Centres: Navigating the future landscape’, hosted by Lockton on 5 November 2024.
As demand for data soars, investment is flowing into data centres. According to Savills, European data centre capacity is expected to increase 21% (opens a new window) by 2027, while total internet bandwidth usage will nearly triple during the same period, driven by tighter rules around data retention and new, more powerful artificial intelligence tools. This growth is not without challenges, however – including how to deliver data at scale, and minimise the sector’s carbon-intensive footprint.
Below, we pick out five key issues facing the industry in the years ahead.
1. ‘FLAP-D’ power scarcity
Frankfurt, London, Amsterdam, Paris, and Dublin (‘FLAP-D’) boast the highest concentration of data centres in Western Europe. But this high concentration, combined with data centres’ intensive energy demand, is placing an ever-growing burden on local grid infrastructure. In both Dublin and Amsterdam, governments have imposed a moratorium (opens a new window) on the construction of new data centres, citing energy constraints. Meanwhile, sites once suitable for tier 2 or tier 3 datacentres are now becoming tier 1 locations, due to insufficient power supply, a shortage of land, and lack of available grid connections.
With capacity at a premium, customers are increasingly targeting new sites for development beyond traditional locations. In Europe, Milan and Oslo are among several cities attracting investment, while in the UK, development is moving away from the popular Slough ‘Availability Zone’ (AZ), in West London, home to more than 30 data centres as of May 2024 alone. New favoured locations include sites in East London, but also further afield, including rural sites in the Midlands and North of England. These AZs also offer an additional advantage compared to traditional urban centres, by giving developers the ability to construct at scale.
2. Rethinking power supply
Location isn’t the only obstacle facing the sector. Data centres require a significant baseload for day-to-day operation – equivalent to the annual baseload of 60,000 households for an average-sized data centre. Currently, this is typically supplied under a Corporate Power-Purchase Agreement (PPA) between operators and power producers. However, with the number of data centres on the rise, this system is being tested to its limits. In summer 2023, some data centres in the UK were forced to scale down operations because their demands could not be met by the national grid infrastructure.
Operators are increasingly looking to circumvent these limitations. Achieving the required baseload through a fully islanded system (with total disconnection from the grid) is unfeasible. However, so-called ‘behind the meter’ onsite energy generation is likely to expand. This could involve private wire networks: localised electricity grids, linked to privately owned electricity generation equipment and to local distribution networks, delivering a stand-alone supply in the event of a national grid failure.
This, or other forms of decoupling from national infrastructure could improve data centres’ resilience, and reduce costs by subverting national grid charges. It may also accelerate the pace at which new data centres can be built and new areas served. What’s more, by reducing data centres’ demands on the national grid, it could also free up capacity across the ailing nationwide infrastructure.
3. Embracing new forms of energy generation
Once expensive, renewable forms of energy have significantly reduced in price in recent years. This makes them an increasingly attractive option for data centres looking to minimise cost, sidestep power supply challenges, and reduce reliance on national infrastructure.
A bigger question, however, is how to go green. Solar and wind are reliable, if intermittent, forms of energy generation, delivering cheap power for minimal environmental impact. Another option is nuclear, which benefits from a capacity factor above 90% (opens a new window), making it the most reliable energy source. In the UK, the Government has set out its ambition to deploy a first-of-a-kind Small Modular Reactor (SMR) (opens a new window) by the early 2030s. SMRs are advanced nuclear reactors that have approximately one-third of the generating capacity of traditional nuclear power reactors. Given their size, it’s thought SMRs could be shipped and installed on site, and at locations unsuitable for larger nuclear power plants.
Then, there’s hydrogen. Albeit heavily subsidised, hydrogen is already being used in industries from transport to chemicals, and provides an effective means of energy storage. However, burning hydrogen to generate power for data centres is unlikely to be cost effective in the near future.
4. A shifting regulatory environment
Data centres’ unprecedented growth coincides with a tightening regulatory environment for operators. In 2023, the EU’s updated Energy Efficiency Directive (opens a new window) (EED) introduced a reporting scheme for data centres across Europe, requiring operators to provide annual reports on energy and sustainability performance, as well as metrics including data traffic and Information and Communication Technology (ICT) capacity. The requirement applies to all data centres with an installed information technology power demand of at least 500KW.
The EED provides a minimum reporting standard, but EU Member States are free to introduce requirements that are stronger or broader in scope. The German Energy Efficiency Act (opens a new window), for example, sets out its own expectations for data centres regarding power usage effectiveness and waste heat recovery. Owners and operators will have to navigate these complex and at times contradictory layers of regulation.
In the UK, the Labour Government has designated data centres as ‘Critical National Infrastructure (opens a new window)’ (CNI). Alongside energy and water systems, UK data centres can now expect enhanced government support to anticipate, and recover from, critical incidents. Yet, while a positive, the designation is likely to bring data centres under further regulatory scrutiny, including resilience to threats such as natural disasters and cyber-attacks, which may bring long-term cost implications.
5. Adapting to innovation
New and emerging technologies continue to evolve the data centre landscape. In October 2024, IBM launched Europe’s first quantum data centre (opens a new window), designed to enable European companies to develop quantum computing use cases. While a step forward for the sector, the rollout of quantum data centres is likely to introduce new challenges, from space considerations, to cooling system best practice, IT workload, and cyber encryption protocols.
Driven by regulatory pressure, cogeneration – otherwise known as combined heat and power (CHP) – could also bring fresh impetus to the sector. Unlike most CHP use-cases, data centres’ primary thermal need is to remove waste heat. This is typically achieved through water cooling by using electric chillers or compression refrigeration systems. In a data centre, however, a CHP installation relies on absorption chillers to provide cold water from the gas engine cooling water and exhaust heat, which is then run through the facility.
Ultimately, CHP could provide a blueprint for data centres to reduce both their costs of operation and greenhouse gas emissions. This could be combined with other forms of waste heat recovery to provide heat and hot water to residential and commercial properties in the wider heat network.
For more information, including our full range of data centre solutions, visit our Data Centres (opens a new window) page, or reach out to a member of our team.
