The high cost of electricity is causing financial problems for data centers in Europe. They are asking customers, including enterprises, cloud providers, hospitals and hosting companies, to break current contracts in order to charge higher prices. These customers often have no choice but to comply with these requests.

While electricity prices have been climbing since mid-2021, they have skyrocketed ever since Russia invaded the Ukraine. In many cases, medium-sized data centers in particular now pay twice as much as they did before, while they are bound by contract to maintain existing rates for longer periods of time. In some cases, data centers are only able to pass on half of the electricity purchase costs to their customers.

In other cases, the purchase prices are charged to customers 1-to-1. There is a problem with this because the data centers usually pay their electricity bill in advance, while their customers do not. This puts extra pressure on their cash flow. For medium-sized data centers, this problem is becoming more prevalent.

Data centers that are powered by gas-fired power stations suffer most from these problems. Electricity prices are much more stable in countries like France, where many nuclear power plants are located. In areas such as Scandinavia that use hydroelectric power, the prices are also more stable.

Whether this situation lasts much longer depends on the conflict in Ukraine. Is the war over in a few weeks, analysts expect that energy prices will probably fall again in a reasonable period of time. If the fighting continues for many months to come, there is a good chance that more and more customers will consider relocating their IT equipment to countries where electricity costs are lower. However, moving an extensive IT infrastructure to another country is a very complex and risky project.

Photo credit: Tetiana Shevereva