High energy costs threaten Europe’s AI competition with US and China
Energy expenses differ significantly throughout Europe, influencing which countries excel or fall behind in attracting investment
Europe aims to establish itself as a frontrunner in AI, competing with the United States and China. However, soaring energy costs might threaten these aspirations, according to experts consulted by CNBC.
The continent is keen to get an edge in AI by enhancing computing power and developing essential infrastructure for the technology. Yet, energy-intensive data centres mean investments are particularly susceptible to energy expenses, and Europe's costs are escalating due to the U.S.-Iran conflict.
Plans for data centre expansion are likely to shift to regions of Europe with more affordable power, resulting in winners and losers across the region, experts have noted.
"The disparity in global energy costs is becoming significantly stark," shared Michael Brown, a global investment strategist at Franklin Templeton, with CNBC.
"If you're allocating funds to energy-demanding ventures, you will opt for locations with the cheapest energy. If I were building the next $7 billion data centre, it would likely be in the US or China."
"Following the recent Iran crisis, there's renewed enthusiasm for electrifying the economy," Olivier Darmouni, a specialised associate professor at HEC Paris, remarked during a press briefing on Tuesday.
He found that the swift rise of data centres might drive regional electricity prices up by 20-40% in high-demand areas such as Texas and Virginia in the US, or Slough in the UK, and Paris in France.
AI serves as a "wake-up call" to view the energy framework as a vital component of economic sovereignty, he remarked. "Affordable energy, inflation control, competitiveness of European enterprises, and leading the technological race in AI — none of this is feasible without a robust energy framework."
Last year, the energy prices for industries in Europe were on average nearly twice as high as in the US and 50% more compared to China and India, according to the International Energy Agency.
Data centres now account for 2% of global electricity consumption, up from 1.7% in 2024, as per a report released by the International Data Center Authority (IDCA) on Wednesday.
IDCA's analysis showed that community and political pushback against data centres commonly intensifies once they surpass 5% of a country's electricity use — marking a crucial tipping point.
The US is approaching the 6% mark, the UK is at 5.8%, and Singapore stands at 19.5%, the report indicates.
Chris Seiple, vice chairman of Wood Mackenzie’s power and renewables division, mentioned to CNBC three reasons why Europe lags in data centre progression: "First is the cost of energy, second is the geographical position of companies setting up data centres, and third is the speed to market – the duration required to construct the infrastructure and establish connectivity."
"These make data centre development in Europe somewhat more challenging," he added.
Europe has a strategy to enhance its computing power and increase data centre development, but Darmouni pointed out that the region faces a genuine challenge in determining its commitment to leading the AI technology frontier.
"Having numerous data centres is essential if we aim to compete with the U.S. The current disparity is significant, and matching the U.S. requires substantial investments," he highlighted.
