Out-Law Analysis 3 min. read

Frankfurt wants to regulate data centres more strictly

Frankfurt has proposed a development plan that it hopes will strike a balance between supporting the growth of its datacenters industry and ensuring that it does not consume too much space or resources.

The city has proposed a new urban development concept that it hopes will help it to avoid "uncontrolled growth" of data centres.

Frankfurt is the hub of the data centre industry in Germany, partly because of the demand for fast data from Frankfurt's strong financial industry, and partly because it is home to one of the largest internet exchange points in the world: around a thousand international networks converge at DE-CIX. There are more than 60 colocation data centres, where businesses house their own equipment alongside that owned by the company.

Frankfurt joins London, Amsterdam, Paris and Dublin as one of the largest locations for data centres in Europe. However, the city wants to control their development and the municipality wants to shape the city with a new urban development plan.

According to the municipality, 65 hectares of land are already occupied by data centres, with even more to come - the industry is developing far faster than experts had predicted just seven years ago. More and more data centre clusters are also springing up in the surrounding Rhine-Main region. The Covid-19 pandemic is causing additional growth as video conferencing, digital teaching and the increased demand for online games and streaming require additional computing power. In addition, many German companies plan to process their data domestically in view of the existing requirements for data protection and security, which also promotes the construction of new data centres.

Frankfurt sees a need to ensure that the already rare space in the city does not become even scarcer and that other companies are not driven out of the business parks. Therefore, data centres are to grow more in height than in width in the future.

The high energy consumption of data centres is also a problem. Frankfurt intends to solve it through waste heat utilisation: data centres generate a lot of heat that could be used as an energy source in neighbouring residential areas. This would improve the energy balance of data centres.

According to a 2018 study by the Network of Energy Efficient Data Centres (Ne-RZ), Germany is  in the lead internationally when it comes to developing energy efficient data centres. But though data centres are becoming more efficient, online data consumption is growing fast. A single new data centre now often requires more than ten megawatts of power, according to data from the municipality of Frankfurt, and large data centres require more than that.

According to a survey of data centre operators, Germany offers many advantages as a data centre location, including a very reliable power supply, data protection and legal certainty, but the industry is wary of the high price of electricity and lengthy approval processes when building facilities. According to the Ne-RZ study Germany's growth as a data centre location is only average in international terms and the Frankfurt area, with its dynamic growth, is an exception to the situation in other parts of Germany.

International cloud computing providers have built only a few large mega or hyperscale data centres in Germany. The Netherlands and Scandinavia are the preferred locations for such projects and there are strategies and support measures for data centre expansion there, especially with regard to the price of electricity.

According to a price analysis by the digital association Bitkom, in no other country in Europe did data centre operators pay such high taxes, levies and grid fees for electricity in 2019 as in Germany, at  €113.11 per MWh. The lowest ancillary costs were in the Netherlands at €17.08 per MWh, in Sweden it was €17.70 per MWh, in Finland €21.97 .

"While the basic prices for electricity are quite similar in Europe, the ancillary costs from levies, taxes and grid charges are set by politicians. The biggest price driver in Germany is the EEG levy. Unlike other energy-intensive sectors in Germany, data centres are not exempt from this," Bitkom said in January 2020.

To stand up to international comparison in the future, it will be necessary to develop new strategies nationwide and find solutions that equally benefit the environment, society and the digital economy, so Germany can keep pace with the digital transformation and remain an attractive location for data centres.

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