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Electricity Demand: A Strain on Europe’s Aging Power Grid
Amid rising inflation and economic challenges, the electricity market in Europe, particularly in Poland, is facing critical pressures as demand surges. As of January 18, 2025, the Polish government has announced an increase in electricity prices, potentially exacerbating inflation rates, which are among the highest in Europe.
The increasing reliance on artificial intelligence (AI), the burgeoning demand for data centers, and the shift towards sustainable energy, especially in the transportation sector, are significantly intensifying electricity demand. However, the current power infrastructure is proving to be inadequate, unable to support burgeoning needs.
Experts warn that businesses are experiencing cumbersome delays of five to eight years to connect to Europe’s outdated electricity grids. This is largely due to an unprecedented influx of applications for grid connections, as reported by experts to CNBC. The International Energy Agency (IEA) estimates that over 1,500 gigawatts of clean energy projects have faced delays, with about $700 billion in investments necessary for nations to achieve their climate goals.
Data centers, which serve as critical hubs for computing activities requiring substantial energy, lead the charge in this surge for grid connections. Diego Hernandez Diaz, a partner at McKinsey, highlighted that his recent focus has been nearly exclusively on data centers. He anticipates the sector will grow at a compound annual growth rate of 20% over the next six years, driven in part by the escalating demand for facilities capable of training large language models (LLMs), as major tech companies vie for dominance in the AI arena.
Energy management firm Schneider Electric has cautioned that Europe is on the verge of a power crisis, with three to five-year waiting times in energy-constrained areas. The competition for grid access is fierce, as companies seek to maximize their operational capacities while battling constraints related to available power and necessary permits.
“The number of applications for grid connections has skyrocketed from one or two per year to upwards of 1,000 in some countries,” said Steven Carlini, chief advocate for AI and data centers at Schneider Electric. This shift signifies a marked change in the landscape as demand pressures mount.
In addressing the issue, Diaz stressed that not only must investment in energy infrastructure increase, but the speed of deployment of these solutions will be crucial. He pointed to the pressing need for Germany to ramp up its annual power line construction from 400 to 2,000 kilometers.
According to Jerome Fournier, director of innovation at Nexans, a manufacturer of subsea cables, the firm is currently facing an extensive order backlog, amounting to between seven and ten billion euros ($7.28 billion to $10.40 billion). The demand for Nexans’ cables, essential for transmitting energy from renewable sources to consumers, has surged as firms grapple with how to balance manufacturing capabilities with project profitability.
Developing a New Energy Ecosystem
Power challenges are prompting data center operators to innovate their own “ecosystem of power backup,” as described by Carlini. In the evolving energy landscape, data centers are expected to play a crucial role, particularly if they begin generating their own energy using small modular reactors.
Additionally, as Carlini noted, the integration of battery storage and strategic charging is becoming increasingly vital. These systems allow for energy storage from the grid, providing necessary backup during peak usage times.
Ben Pritchard, CEO of power solutions provider AVK, observed that numerous European nations are seeing unprecedented requests for grid connections, with projects reaching 100 megawatts, a scale previously unencountered. Pritchard advocates for innovative energy solutions, including microgrids that function as independent power systems.
In Norway, evolving practices such as flexible connection agreements are being tested, allowing customers to adjust their energy consumption based on the grid’s capacity at different times. This approach enables a more adaptable energy use system.
Think tank Ember has advocated for implementing anticipatory grid investments, allowing operators to systematically plan based on prospective trends in key technologies such as renewable energy and battery storage. Pritchard predicts that nations that enact supportive policies for transitioning to decarbonized energy systems will emerge as leaders in this competitive market. He remarked, “A bottleneck in the grid pushes stakeholders to think outside traditional solutions, facilitating a significant market shift.”
Growth Trends in the European Energy Market
Despite the rising demand in select new industries, Europe is trailing behind other regions in terms of electricity demand growth. The region faces challenges from high electricity prices and operational costs, leading to a fragmented market landscape.
The IEA recently noted the onset of a “new Age of electricity,” raising its projections for global power demand growth to 3.9% for the 2025-2027 period—the fastest rate observed in many years. However, forecasts for Europe remain subdued, with a mere 1% increase in demand recorded for 2024, reflecting a slow recovery after two years of declines, according to Ember’s January report.
“2024 signifies a turning point for electricity demand,” stated Beatrice Petrovich of Ember. The report indicates a slight rebound widespread across Europe, hinting at gradual recovery. McKinsey’s Diaz added that post-energy crisis, electricity prices have stabilized between 60 and 80 euros per megawatt hour, still significantly higher—50% to 100%—than historical averages.
The resulting surge in energy costs has impacted consumer behavior, evident in slowing demand for electric vehicles and heat pumps. Diaz emphasized the stark reality that energy demands for manufacturers in Europe far exceed those in other global regions, posing unique challenges to operational viability. Although the unprecedented boom in data centers offers some support to the overall energy curve, many other sectors are struggling to keep afloat amidst these challenging dynamics.
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