Beyond the grid: how Europe's data centre sector is navigating its green energy options

Power is mission critical for data centres and accounted for around 1.5% of global electricity consumption in 2024, according to the International Energy Agency. It remains the sector's largest operational expense, the main source of emissions and, in many markets, is increasingly difficult to secure at scale.

With ongoing digitalisation and rapid expansion of artificial intelligence, these pressures are only set to intensify. In the wider context of grid constraints, volatile wholesale prices and increasing regulatory and investor pressures, green energy is not only a sustainability choice but also a practical route to cutting costs, ensuring stable supply and boosting operational resilience.

EU and UK policymakers and legislators are sharpening their focus on data centre energy consumption. The most effective routes for data centres to source green energy are approaches that aim to balance evolving regulatory demands, shifts in the energy marketplace and long-term business objectives.

Data centre operators have access to multiple green energy procurement strategies, each with different potential benefits.

Electricity self-consumption  

Self-consumption involves using electricity generated by an on-site renewable installation – often photovoltaic panels – for direct use by the data centre. Any surplus self-generated electricity can be exported to the grid, with data centres receiving payment or credit for excess power generated. This approach can be appealing not only for its potential to reduce costs and carbon emissions but also for the opportunity to avoid regulatory requirements associated with exporting electricity in some regions.

Where export is envisaged, licensing, registration and connection requirements usually apply above certain capacity thresholds. These can vary by country. In the United Kingdom, for example, generation licence exemptions exist for smaller plants and some on-site configurations, while separate rules apply to supplying to third parties.

Power purchase agreements

A power purchase agreement (PPA) – commonly referred to as a physical PPA – is the leading route to scaling renewable power procurement. Under a physical PPA, a renewable energy generator sells a specific amount of electricity at an agreed price for a fixed term, often between five and 20 years, with power delivered through the grid and usually "sleeved" via a licensed supplier.

For data centre operators, the appeal is budget certainty, the ability in some instances to support newbuild projects, often via long-term PPAs – also referred to as corporate PPAs – and the option to contract volumes aligned to growth.

Energy-generation profile and location are important considerations when agreeing PPA terms. While wind and solar outputs rarely match the flat consumption profile of a data centre, buyers can opt to take power directly from these sources. However, this requires careful management as the structure and delivery of PPAs carry distinct price and risk implications. Differences between the project’s pricing point and the facility’s supply point can create basis risk; supplier arrangements and contract terms can help allocate or mitigate this.

Long-dated offtake arrangements support project finance but typically require credit support which can be costly. Changes in the law, curtailment risk, grid reinforcement risk and contract tenor should align with site control, client commitments and investor requirements.

Virtual power purchase agreements

A virtual power purchase agreement (vPPA) is a contract for difference: the buyer agrees a fixed strike price with a generator and the parties settle the difference against a market index for the project’s output. As a vPPA does not involve the physical delivery of electricity, the buyer continues to purchase electricity as usual. This structure can work across multiple sites and markets where physical delivery is complex or not feasible.

For data centres, the advantages are flexibility and scale. A vPPA can underpin additional renewable capacity, delivering credible sustainability outcomes while providing a hedge against wholesale price movements. These agreements introduce accounting and governance considerations and can leave a mismatch between the index used for settlement and the tariffs actually paid on site. Many operators therefore combine vPPAs with other tools to achieve both financial and operational objectives.

Energy attribute certificates

Energy attribute certificates are market instruments that enable businesses to purchase renewable energy at a low cost. Each certificate represents one megawatt-hour of electricity generated from renewable sources.

Classification of certificates vary across different markets. In the EU, they are referred to as guarantees of origin. In the UK, they are referred to as renewable energy guarantees of origin (REGOs) and in the US as renewable energy certificates (RECs). Certificates can be incorporated into PPAs or procured separately. The certificate price may be included in the power price, or alternatively they can be priced separately.

For "always on" facilities like data centres, the way certificates are used is becoming increasingly important. Annual matching – where data centres can claim up to 100% renewable energy consumption by matching total annual renewable energy generated with total annual consumption – can improve reported emissions although a 24/7 operation may still consume carbon intensive power at certain times.

Public disclosures and statements should reflect the underlying instruments and methodology to reduce the risk of over claiming and ensuring compliance with data centre leases and disclosure standards across jurisdictions.

'Photovoltaics as a service'

Operators seeking on site generation without upfront capital expenditure often use third-party ownership. Under a "photovoltaics as a service" business model or an onsite PPA, a specialist fund builds and operates and the data centre pays a service fee or an energy linked tariff. This sometimes includes an option to purchase the asset at the end of the term. This model can deliver predictable cost, professional maintenance and reduced construction risk on a live site. Access rights, coordination of works, performance guarantees and end-of-term options should align with data centre leases and the overall facility lifecycle.

Battery energy storage systems

Battery energy storage systems (BESS) are becoming increasingly integral to data centre sustainability. These systems can store surplus on-site generation or grid electricity during periods of low prices, helping to optimise energy use. BESS facilities also enable data centres to lower peak demand charges, deliver fast frequency response and provide short duration backup through power disturbances.

Some data centre operators are integrating BESS more closely with uninterruptible power supply (UPS) architectures to enhance the value of assets already in place for resilience. Safety considerations and permit requirements under statutory law are critical, with fire regulations and local approval processes shaping technology choices.

The economic case for BESS often relies on stacking multiple value streams such as "peak shaving" strategies, tariff optimisation and participation in grid services where available. While current BESS technology does not replace long-duration backup generators, it can materially improve power quality, reduce costs and strengthen the business case for on-site renewable energy.

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Leading data centre operators are moving from single-instrument approaches to hybrid portfolios that blend on-site generation (owned or as a service), long-term PPAs, targeted use of certificates, and storage with smart controls. This mix can lower and stabilise energy costs, reduce reported emissions and strengthen resilience. The optimal approach depends on jurisdictional frameworks and market conditions and should align with the practicalities of running an always-on facility.

Success usually turns on a few elements. Grid access and connection timelines are often decisive, so early feasibility work, including , is advisable. Contracts should align PPA tenor with site control and investor commitments, and address profile mismatch, basis risk, credit support or curtailment.

As certificate regimes differ across markets – for example EU GOs, UK REGOs and US RECs – claims and reporting need to be precise. For on-site generation and BESS, with UPS, as well as early planning for generators at the outset, are key. With coordinated, cross functional preparation, these issues can turn energy strategy into a competitive advantage for data centre owners and operators.

Looking ahead, the EU’s proposal for a data centre energy-efficiency package – expected in the first quarter of 2026 – and its recent call for evidence on AI and digitalisation in the energy sector, signal a new era of policy engagement. These initiatives aim to improve the long-term planning and the sustainable integration of data centres into Europe’s electricity grids by fostering greater dialogue and coordination among key stakeholders including data centre developers, green energy producers, grid operators and regulators.

The UK is also preparing to sustainably integrate the energy demands of data centres. According to the House of Commons Research Briefing, "Data centres: planning policy, sustainability, and resilience", the government's Strategic Spatial Energy Plan (SSEP) will include identifying optimal locations for one to two GW of data centre capacity. A draft consultation on the draft SSEP is expected to be published in Q2 2026. The AI Energy Council has also been established to promote collaboration between the AI and energy sectors, focusing on siting data centres in locations that support grid balancing and utilise excess renewable energy.

Data centre operators should prepare to navigate a more complex regulatory environment – one that could include new efficiency-scheme ratings, potential minimum performance standards and requirements that aim to reduce strain on electricity grids.

Osborne Clarke has in-depth expertise across Europe's energy markets. We provide advice on renewable energy projects and transactions covering solar, onshore and offshore wind, hydro, waste and bioenergy.