Why Europe’s electricity prices threaten its AI ambitions

Europe wants to position itself as a leader in AI and compete with the U.S. and China — but experts told CNBC that its soaring energy prices could undermine those ambitions.

The region is looking to get ahead in the AI arms by ramping up compute capacity and building out the critical infrastructure needed for the technology. But power-hungry data centers mean investments are particularly sensitive to the cost of energy, and Europe’s prices are surging amid the U.S.-Iran war.

Data center projects are likely to migrate to parts of Europe with lower power costs, creating winners and losers across the continent, the experts said.

“The difference in the cost of energy around the world is going to become really quite extreme,” Michael Brown, global investment strategist at Franklin Templeton, told CNBC.

“If you’re making energy-intensive investments, then you’re going to go to where the cheapest energy is. If I were making the next $7 billion data center, it would be in the U.S. or China.”

“There’s been a renewed interest in electrifying the economy after the recent Iran crisis,” Olivier Darmouni, associate professor at HEC Paris who specializes in the energy transition, said during a Tuesday briefing with reporters.

He found that the rapid growth of data centers could inflate regional electricity costs by 20-40% in red-hot areas such as Texas and Virginia in the U.S. or Slough in the U.K. and Paris in France.

AI is a “wake-up call” to think about the energy system as a matter of economic sovereignty, he said. “Affordability and inflation, competitiveness to the European companies and technological leadership in the form of AI — we can’t get any of that if we don’t fix the energy system.”

Prices for energy-intensive industries in Europe last year were on average roughly double in the U.S. and 50% higher than in China and India, according to the International Energy Agency.

Data centers now consume 2% of the world’s electricity, up from 1.7% in 2024, according to a report from the International Data Center Authority (IDCA) published on Wednesday.

IDCA’s report found that community and political pushback against the facilities typically intensifies once data centers exceed 5% of national electricity consumption — marking a key tipping point.

The U.S. is nearly at the 6% threshold, the U.K. is at 5.8%, and Singapore is at 19.5%, according to the report.

Chris Seiple, vice chairman of Wood Mackenzie’s power and renewables division, told CNBC there were three reasons Europe was behind in data center development: “One is the cost of energy, two is the geographic location of the companies developing data centers, and three is the speed to market – the amount of time it takes to build the infrastructure and get connected.”

These “make Europe a little bit more challenging to do data center development,” he added.

Europe has a plan to boost its compute capacity and data center buildout, but the bloc faces a real challenge in deciding whether it really wants to…