The Rise of Data Centres in Spain

An opportunity for Power Purchase Agreements (PPAs) and price cannibalisation mitigation

The exponential growth in global data consumption, driven by the eruption of artificial intelligence, has brought data centres into the focus of investors. In this context, Spain is emerging as a relevant market for data centre investments. This is primarily attributed to its strategic geographical location, offering substantially lower energy and land costs compared to other major cities like Frankfurt, London, Amsterdam, Paris or Dublin.

This burgeoning sector has attracted the attention of technology giants such as Amazon, Microsoft, Google and Meta, which have announced millions of euros in infrastructure investments in Spain, reflecting the potential of the Spanish market. The data centre industry is growing exponentially, with figures of 150 MW of installed power in 2022, 200 MW of installed power in 2023 and with a forecast of well over 900 MW of installed power in the next five years. Currently, Madrid is the leader in colocation projects, while Aragon is the leader in hyperscale projects, with projects such as those of Amazon Web Services and Microsoft. Aragon has become the trendy destination for large technology companies to build hyperscale data centres due to its strategic location which ensures low latency and energy needs.

In this context, data centres are becoming one of the main alternatives for securing financing for renewable projects and providing an outlet for a renewable energy market that generates much more energy than the current demand, and for which supply is expected to keep growing exponentially by 2030 according to the National Integrated Energy and Climate Plan (PNIEC). The consolidation of the data centre sector and its commitment to green energy through PPAs could play a key role in mitigating the price cannibalisation caused by the penetration of renewables, mainly solar, in a market facing the current lack of demand, which is currently leading to negative prices in the Spanish electricity market during much of the middle hours of the day. Some examples illustrating the successful growth of the PPA market in the booming data centre industry are the recent PPAs signed in the Spanish market between Apple and Ib Vogt (105 MW), Repsol and Microsoft (230 MW), Equinix and Ignis (225 MW), Digital Realty and BRUC (five PPAs to cover around 347 GWh), or Amazon and Grenergy (469 MW).

However, the journey to become Spain as a leader in the data centre market is fraught with challenges. The success of this industry hinges largely on the development of energy transport network infrastructures. Spanish data centre associations have voiced concerns about the current state of these infrastructures. In response, the Spanish government is considering revising the limits on network investment. In June, the Spanish government launched a public consultation on this matter, proposing several measures including increasing investment in distribution and/or transmission networks, raising the maximum investment volume as a percentage of Gross Domestic Product (GDP), modifying the conditions under which the investment volume could be increased, and establishing a new procedure for authorising investments above the maximum volume in force.

In conclusion, the rise of data centres in Spain presents a unique opportunity for PPAs, as well as a great solution to mitigate price cannibalisation. However, it is critical to address the challenges and ensure the development of robust energy transport network infrastructures to fully realise this potential.
 
For more information, please contact José de Santiago and Jorge Gómez.