Column: Data centres are an integral part of a developing energy system and economy

The views on data centres and their electricity use presented in public tend to either depict the centres as a threat to the sufficiency of electricity or, alternatively, highlight the necessity and benefits of such investments. However, data centres are not a black-and-white issue. Data centres should be seen as a part of the overall economic change, data sovereignty and general electrification. Through sensible measures, the centres can be efficiently integrated into Finland’s clean and smart energy system.

Many kinds of investments are anticipated in Finland

Over 95 per cent of Finland’s electricity production is based on clean energy sources and the share of weather-dependent production will continue to grow, in particular. Against this background, it is important to take a look at not only the need for capacity but also the ability to consume electricity flexibly and to store energy in various forms (batteries, heat, intermediate industrial products). In principle, all electricity-intensive investments should be assessed using the same criteria. Data centres are not an exception.

Thanks to our affordable and clean electricity, Finland is also an attractive target for investors in traditional industries that use a great deal of energy. With electricity serving as the foundation of competitiveness, it is in the operators’ own interest too to ensure security of electricity supply and its reasonable price. 

The widely available Power Purchase Agreements that offer electricity at a fixed price have so far offered little reward for flexibility. However, this is changing as demand for electricity grows strongly. Flexible consumption and storage can generate sizeable returns on the electricity market, which also provides an incentive for the planned investments in hydrogen and pumped storage power plants.

The significance of both industrial and data centre investments lies in their role as a source of economic activity and growth. Their direct employment effect during the operation of the facilities may be relatively small. Tax revenue mostly benefits the municipalities where the facilities are located, above all.

There is plenty of energy but flexibilities are necessary

The estimated amount of electricity required by data centres vary. The value of data centres that currently exist, are under construction or for which an investment decision has been made totals approximately EUR 80–90 billion, including the necessary equipment. Based on this, the annual consumption of electricity in Finland could increase by 8–10 terawatt hours, which would account for about one tenth of Finland’s electricity consumption.

Unlike the processing industry plants, data centres typically grow in phases, depending on service demand, which allows the supply and production of electricity to be adjusted. On the other hand, data centres rarely operate at full nominal power and they may also make use of flexibility in their operations. It is also good to keep in mind that processes in traditional industries can be quite inflexible or slowly adjustable, even when the value of price flexibility is recognised.

There is enough electricity in Finland. The growing demand creates more supply, especially wind and solar power plant projects that can be implemented in a couple of years. More room and potential for these projects still exist in Finland.

The logic of nuclear energy investments producing base power is somewhat different. The construction of the plants lasts 10–15 years and they may be in operation for a very long time, up to 60–70 years. Nuclear power as such is a suitable partner for data centres that require constant electricity supply, and artificial intelligence companies in the US have advanced in this respect, for example.

The need for balancing power is a key issue and the currently available hydro power and pumped storage power of the future will not be enough. Strong international grid connections only help to a certain extent, even if such connections are now under development.

Market prices guide data centres to actively utilise their battery storages and reserve capacity – which they have built for securing server operations – to balance costs. This incentive becomes more obvious when obtaining an affordable fixed-price electricity contract turns out to be increasingly difficult. It is justified to encourage and, if necessary, even require data centres to make use of flexibility. 

Naturally, safeguarding the security of electricity supply in all situations is a wider energy policy issue that applies to society as a whole. To this end, the Ministry of Economic Affairs and Employment is preparing an aid instrument to ensure sufficient capacity of domestic electricity also during the coldest weeks of winter. 

The instrument will be an investment subsidy for weather-secure production and combined heat and power plants. The purpose of the subsidy is not to prevent market-based investments; instead, it aims to complement them. The details of the subsidy model will be ready by autumn. In this context, data centres may also have the opportunity to enhance and utilise their flexibility capacity more extensively.

Regulation must guide towards efficient use of energy and networks

Finland is not alone in dealing with the questions posed by data centres. The EU Energy Efficiency Directive already requires that the waste heat generated by data centres be utilised if this is technically and economically feasible. Because it usually is feasible in Finland, energy efficiency increases considerably. 

The European Union is also debating whether other obligations of data centres should be expanded. A regulation on the rating scheme for data centre sustainability is currently under preparation. In future, the provision of balancing power could be a possible obligation in the EU and the internal market. General European rules applicable to all could further clarify the playing field.

Finland has strong electricity networks and compared with other European countries, new operators can be connected to the grid quickly. In any case, the construction of a new network takes years. It is therefore advisable to use the existing transmission capacity as efficiently as possible while the network is gradually being improved and expanded.

The option of prioritising operators planning to connect to the network based on objective criteria and within the framework of EU legislation should be assessed. The idea is to enable the operators with less network and electricity load to access the grid faster. One particular criterion could be flexible electricity use. The revised Electricity Market Act already allows temporary restrictions on the power of electricity connections.

The location of the facility can also have a substantial impact on the capacity of the network. A good example of this are battery storages which, in the best case scenario, if properly located, reduce the need to expand the network and, in the worst case scenario, restrict other connections. For this reason, it would be justified to provide guidance on the location of these investments.

Looking at the big picture

Data centres should be considered a part of the development of a modern society and economy. The centres have strong links to the use of artificial intelligence and electrification in general. Based on market information and with the help of carefully outlined steering measures, significant server capacity can be built in Finland  while keeping the price of electricity at a low level compared with many European peers. This is, as usual, the responsibility of both the government and companies.

Riku Huttunen is the Director-General of the Energy Department of the Ministry of Economic Affairs and Employment