Value and enablers of data centre flexibility in Europe

As essential enablers of the digital and AI-driven economy, data centres are set to expand rapidly, with far-reaching consequences for power systems. Despite the inherent uncertainties along data centre deployment, estimates point to a two to fourfold increase in data centres' electricity demand by 2035 in Europe, outpacing the development of the electricity network. This phenomenon conflicts with already strained networks, which are challenged by the integration of decentralised power generation, and causes a negative perception due to concerns about energy affordability and environmental sustainability. In that context, ensuring a system-friendly integration of data centres in Europe is a key challenge to realise European economic and sovereignty objectives.

Recent real-life demonstrators show that data centres can support the power system by operating flexibly, but their potential remains largely underexploited. By adjusting the allocation of the shiftable load across time and geographies, data centres' flexibility could provide system services similar to batteries (through temporal load shifting) and interconnectors (through geographical load shifting) without disrupting their regular operations. A transparent, harmonised, and conducive regulatory framework is required to enable data centres to become “grid assets”, which, in turn, will help accelerate grid access and foster their system-friendly deployment. This study explores this question and assesses how different levels of data centre flexibility benefit the power system. It develops two scenarios where policies and regulations provide different levels of incentives for data centres’ flexible operations:

• The Mandated Flexibility scenario, representing a case where a flexible connection agreement is granted to data centres in exchange for minimum flexibility requirements used to relieve a small number of stress episodes.
• The Open-EU Flexibility scenario, where data centres actively optimise demand to match system needs. In this scenario, flexibility is continuously optimised by data centre operators, using all their feasible technical flexibility without impacting operations.

We find that requiring minimum flexibility from data centres directly affects power system dimensioning, yielding substantial economies without impacting data centre operations. The Mandated Flexibility scenario requires data centres to provide flexibility for only 1.5% of the hours in the year, and impact only 0.6% of their electrical demand. By targeting peak-demand hours, 4 GW of thermal capacity can be made redundant by 2035, resulting in annual cost savings of €500 million with only 1 TWh of data centre demand managed flexibly.

Activating all potential levers of data centres' flexibility brings further benefits to the energy system in terms of emission reduction, integration of renewables, and reduced power system stress. In the Open-EU flexibility scenario, roughly 20% of the total annual data centre load is flexibly optimised by data centre operators. This additional flexibility helps replace 20 TWh of thermal power generation with renewables, induces 5 Mt of CO2 emissions savings per year by 2035, and could unlock up to €1.7 billion per year in welfare gains by 2035. Capturing this potential requires a more coherent regulatory framework than exists today. Flexible connection agreements have begun to emerge across at least fifteen Member States, but they remain heterogeneous and not all are not fully adapted to data centres’ specific technical and operational profiles. The harmonised FCA templates, developed jointly by regulators, system operators and data centre operators, would help streamline practices, define common minimum flexibility requirements, and provide the predictability DC operators need to plan investments and maintain service quality. Beyond connection terms, other levers will be important to provide further incentives to foster further flexible DC operations. More granular and meaningful price signals—through GHG accounting rules and electricity market signals —can steer data centre consumption towards periods and locations with abundant, low-carbon generation.

Based on this quantitative analysis, several concrete recommendations emerge:

1. Beyond incentivising the location of data centres in areas with vast renewable energy sources and/or low grid constraint expectation, integrate data centres in network & system planning

• Include data centres in European and national network planning
• Provide greater transparency on current and planned grid hosting capacity for all new connections, including data centres.
• Introduce differentiated connection charges for new connections to steer investments into the most suitable areas.

2. Promote harmonised templates for Flexible Connection Agreements aligned with the flexibility potential of different network connections across Europe

• Develop a transparent and consistent definition of “grid-friendly uses”, whose minimum requirements are compatible with data centres’ flexibility capabilities. Grid-friendly uses (Lex Europe, Commission Notice) can be used as a compass to select projects that ease grid constraints and may therefore be legitimately prioritised (e.g., for granting early grid access) under dedicated frameworks.
• Develop and align on minimum flexibility requirements under different FCA templates, including a FCA template that is aligned with data centre flexibility capabilities. Policy makers, regulators, system operators and data centre operators should jointly develop minimum flexibility requirements under different FCA templates, including a FCA template that is aligned with data centre flexibility capabilities. This should provide sufficient predictability to preserve steady-state data centre operations, enable their active participation in electricity markets and prevent market distortions.
• Deploy FCA templates across Member States to harmonise access for new connections wishing to opt-in in exchange for varying minimum flexibility requirements.
• Guide users of FCAs on the potential to comply with their flexibility requirements through the purchase of local flexibility connected to the same substation.

3. Encourage further flexibility in data centre operations driven by GHG accounting, market signals and network tariffs. Data centres can lower energy transition costs and reduce reliance on strategic fossil fuels by actively providing system flexibility. Realising these benefits requires more tailored incentives including:

• Foster “system-friendly” data centre energy procurement strategies, by incentivising the deployment of on-site capacity (renewables and BESS) or local PPAs.
• Encourage increasing temporal and spatial granularity in carbon-free energy supply accounting and grid service provision within “minimum performance standards” reporting.

4. Wider considerations on networks and flexibility as increasing flexibility is beneficial for all network users, including data centres.

• Foster further supply- and demand-side flexibility in the system as a no-regret measure for modernising power systems and easing the integration of increasing shares of weather-dependent renewable energy sources and new loads, while supporting power system efficiency and stability.

Untapping further flexibility potential through e.g. increasing the granularity of price zones to reflect inter-zonal congestion in price formation, the introduction of dynamic tariffs and network charges, enabling aggregators to pool small flexible loads, incentives for smart heating or smart charging.