Do data centers increase the price of electricity for consumers? Flexible generation plays a key role.

The need for data transmission is growing in society – and not only because of artificial intelligence. News about data centers often make headlines, but also spark discussion among everyday consumers. One natural and very common concern is whether a data center, when in Finland or even in one’s own municipality, could drive up electricity prices.

Could a data center in your local area actually be good news? Will there be enough electricity, and what about the price? These are very typical questions whenever plans for new data centers are reported in the media.

Data centers are highly energy-intensive, meaning they require large amounts of electricity to operate. Online discussions often reflect concern that a data center in also could lead to higher prices from one’s electricity vendor. But is there any truth to this concern?

– Electricity prices are not determined solely by the situation in Finland or in any single location, says Hans-Alexander Öst, CEO of energy vendor Vaasan Sähkö Myynti.

He explains further:

– Electricity prices in Finland are based on the Nordic system price as well as Finland’s area price. Prices are always determined by supply and demand, and this applies across the entire market area. That’s why it is important that as consumption increases, production also does – so that the balance between the two is maintained.

Data centers often represent attractive investments locally and regionally, for example through tax revenues and jobs created during both construction and operation. They also require a wide range of supporting services, which further contributes to employment.

To support Finland’s economic growth, attracting new investments and business activity is essential.

Data centers bring investments and jobs – and also strengthen security of supply for data processing capacity, as processing takes place within national borders.

Will electricity prices increase for consumers?

The market price of electricity – including spot electricity – is driven by supply and demand. When demand increases, it can affect prices if production does not grow at the same pace.

Economic forecasts have predicted higher electricity prices in the future. One challenge in the energy sector has been that building market-based production has not always been profitable, as market prices have often been low. Consumers may notice this during times when spot electricity prices are very low.

Market-based production means that electricity generation is not subsidised or supported.

Against this background, it is sensible to ensure that major new electricity consumption is accompanied by new production. For example, Microsoft, which is planning a data center in Vaasa, has announced plans to build an equivalent amount of additional electricity production to match its consumption.

Flexible energy generation is key

In addition to increased production, more flexible generation is needed to balance high consumption. As new production is increasingly based on renewable energy, availability can vary. This makes flexible generation essential.

Energy producers investing in flexible generation play a key role in enabling an increasingly electrified society – including data centers.

Different grids than those used by consumers

Power fees are becoming more common in electricity distribution for consumers. Some customers have wondered why small-scale users need to consider their power usage, and at the same time large energy-intensive facilities are being built.

Large data centers are not connected to the same network as households. Consumers are connected to low-voltage distribution grids, whereas data centers are connected to high-voltage or national grids that enable significantly higher power capacity.

Bottlenecks occur at different levels in different networks.

Power fees are designed to guide consumption within each specific network – and similar mechanisms are also used in larger grids.

Data centers also generate waste heat. In some cases, this heat can be utilized in district heating networks, but this requires an agreement between the data center operator and the district heating company. It also requires investments, for example in expanding the heating network and building heat pump facilities.

Waste heat is therefore not a free energy source – but it is a smart way to utilize excess heat and at the same time reduce other production and emissions.