Europe’s battle for power spurs evolution of a new ecosystem for energy-hungry firms
Electric grid is seen in Krakow Poland as Polish government lifts cup in electricity prices what is expected to rise inflation once more – January 18,2025. Poland has one of the highest inflations in Europe. (Photo by Dominika Zarzycka/NurPhoto via Getty Images)
Nurphoto | Nurphoto | Getty Images
The boom in artificial intelligence, a pressing need for more data centers and the energy transition story — particularly in transportation — are all spurring demand for electricity, and the existing power infrastructure is struggling to keep up.
Businesses are facing five to eight-year wait times to connect to Europe’s ageing and strained electricity grids, experts told CNBC, as the emergence of new areas of demand drives an unprecedented rise in permit requests for power. According to the IEA,
In Norway, they’re trialing flexible connection agreements where customers limit their connection to the grid based on certain conditions, Beatrice Petrovich, senior energy and climate analyst at think tank Ember, highlighted. This allows them to adjust their energy usage depending on how the grid is faring at certain times.
Ember also called for the implementation of rules on what it calls “anticipatory” grid investments. These would allow electricity grid operators to plan in a forward-looking way, taking into account the market trends of key technologies, such as growth in renewables and battery storage, Petrovich explained.
Countries that move forward with improving legislation on enabling firms to have a fully decarbonized energy stack will be the “winner of the race,” putting forward a more “friendly ecosystem” around data centers, AVK’s Pritchard said.
Ultimately, a bottleneck in the grid “encourages people to think differently, and when people are encouraged to think differently, they’re more open to different solutions. That, I think, is teeing up for the market to shift quite significantly,” said Pritchard.
Modest EU growth
Despite a growing need for power from some new and developing industries, Europe is still lagging behind the rest of the world when it comes to growth in power demand. High electricity prices and operational costs are hampering overall demand in the region, leading to a more fragmented market.
The International Energy Agency (IEA) this month hailed the rise of a “new Age of electricity,” as it upped its forecasts for global demand, predicting growth of 3.9% for 2025-2027 — the fastest pace of growth in recent years.
The forecasts for Europe are more modest, however. Following two years of sharp declines in power demand, the region saw an increase of just 1% in 2024, according to a January report from energy think tank Ember.
“2024 marks a turning point for electricity demand,” said Ember’s Petrovich, one of the authors of their report. “What we saw is the first rebound — even if it was a small rebound after many years of decline — it was widespread across the block.”
McKinsey’s Diaz explained that since the energy crisis sparked by Russia’s invasion of Ukraine and the subsequent sanctions, electricity prices have settled around 60 to 80 euros per megawatt hour. This is still 50-100% more expensive than prices seen in the previous two decades, however.
As a result, costs for consumers have soared, leading to signs of a deceleration in demand for heat pumps and electric vehicles, he said.
Diaz added that for manufacturers in Europe, the energy requirements “tower above those of any other geography in the world, it’s not only potentially more expensive, but even potentially more challenging,” Hernandez said.
The “unprecedented” growth in data centers is “helping the overall curve ever so slightly, but everything else is fighting against it,” Hernandez said.
