Germany's New Strategy for Data Centers: Electricity Is the Weak Point

The German federal government has unveiled a comprehensive strategy for the expansion of data centers, recognizing that energy supply, particularly electricity, poses the greatest challenge. Digital Minister Karsten Wildberger (CDU) refers to these facilities as "factories of the 21st century," while Economic Minister Katherina Reiche (CDU) calls them the "power plants of the digital age," underscoring their foundational role for the digital economy and the booming AI sector.

At the core of this strategy is the ambitious goal to double Germany's data center capacity by 2030 and even quadruple AI computing power. To achieve this, 28 individual measures have been outlined, with implementation targeted within the next twelve months. These measures aim to address critical obstacles hindering data center growth in Germany.

Energy Supply: The Central Challenge

A primary concern is the availability of grid connection capacities. Industry insiders report that new data center projects face wait times of five to eight years to connect to the electricity grid. The government attributes this partly to competition from other large-scale power consumers, such as battery storage facilities and large heat pumps. To remedy this, the federal government plans to reform the grid connection allocation system. Instead of solely a "first-come, first-served" principle, grid operators will also consider the maturity level of projects. Minister Reiche announced that the Federal Network Agency would develop a new connection regime that accounts for more than just renewable energies and aims to filter out "dubious projects."

High Electricity Prices as an Impediment

Another significant hurdle is Germany's electricity prices, which are high in international comparison. While the strategy includes several measures, the government's hands are tied regarding the most impactful lever: the EU Commission's stance prohibits granting an industrial electricity price specifically to the data center sector. Minister Reiche expressed regret over the lack of "room for maneuver" but noted that discussions are ongoing in Brussels.

Experts anticipate that, despite potential subsidies, other countries will likely remain more competitive on electricity prices in the long term. Consequently, a major expansion boom for particularly energy-intensive AI data centers is not expected in Germany. Günter Eggers, Director Public at NTT Global Data Centers, predicts that while some energy-intensive data centers for training language models will exist in Germany, their scale will remain "manageably small" globally due to the high cost of electricity. However, the EU's planned AI Gigafactories, supported by billions in tax money, could help bridge part of this gap.

Addressing Public Acceptance

The strategy also tackles a growing issue: declining public acceptance for the massive data center halls, particularly prevalent in the Rhein-Main region. To foster greater local support, the government will examine whether a special distribution mechanism for local business tax (Gewerbesteuer) can be introduced for data centers. This change would ensure that tax revenues primarily benefit the municipalities where the data centers are physically located, rather than where the operator's headquarters are situated.

Recent Projects Halted by Protests

It remains uncertain if these tax reforms will be sufficient to boost acceptance and quell protests. Just weeks prior, the city council in Groß-Gerau, southwest of Frankfurt, halted a planned large-scale project where Vantage Data Centers intended to invest €2.5 billion in a 160-megawatt data center. Similarly, in Hattersheim, a town of 20,000 residents already home to eleven data centers and with three more planned, at least one new project has been put on hold due to a citizen initiative's lawsuit against the development plan. Due to the "resulting uncertainty," United-Internet subsidiary Ionos has decided not to submit a building application for now, while operator NTT plans to proceed with its two new data centers.