Key Contacts: Niall Donnelly – Partner
For well over a decade, Ireland has benefited economically and politically from being a strategic hub for digital infrastructure growth and innovation. As my colleague Alice Whittaker reported in Connected Ireland: How subsea fibre optic cables help to drive our social, economic and industrial development – Engineers Ireland, it was an Irish company, Aqua Comms (previously Sea Fibre Networks), that more than ten years ago rolled out some of Ireland’s first modern subsea fibre optic cable infrastructure connecting the USA to mainland Europe via Ireland and the UK.
Significant progress has been made in Ireland’s twin digital and green transition journey and there is more work still to do. Ireland’s Climate Action Plan 2024 underpinned by the Climate Action and Low Carbon Development Act 2015, as amended recognises the significant opportunity for indigenous secure sources of renewable energy and the need to carefully manage electricity demand. The Future Framework for Offshore Renewable Energy identifies the pathways to facilitate alternative markets for Ireland’s enormous offshore wind resource, such as Corporate Purchase Power Agreements (CPPAs). The digital and AI infrastructure sector will continue to be the largest CPPA market both globally and in Ireland for the foreseeable future. The Government is already preparing for significant industrial, employment and economic growth from the opportunities in Offshore Renewable Energy as described in Powering Prosperity – Ireland’s Offshore Wind Industrial Strategy – DETE.
While Ireland has already been chosen as the European HQ for most of the world’s leading technology companies, and has benefitted disproportionately from levels of inward investment and economic growth not seen in other EU Member States, Ireland’s indigenous companies have also grown alongside the multinationals and have expanded their expertise in electrical and digital services, data and cyber security, construction and engineering, and sustainability and environmental services. Through the Net Zero Industry Act and the emerging Clean Industrial Deal, Europe is aiming to procure and manufacture a much greater proportion of key components for the digital and decarbonisation transformations that are happening across all sectors.
The European Commission’s recent document A Competitiveness Compass for the EU succinctly summarises some of the key challenges and opportunities faced by EU Member States in the face of intense competition and geopolitical pressures both within and outside of the EU. Much of what is said about Europe within the Commission’s Competitiveness Compass is equally true for Ireland:
“The EU has all the assets to lead in the global economy of tomorrow. It has unrivalled talents and a skilful workforce, a large pool of private capital, a continental size Single Market, a stable and predictable legal environment, rule of law and a unique social market economy. In recent years, Europe has shown a remarkable ability to respond to a succession of crises. It has withstood the pandemic and the energy shock provoked by Russia’s energy blackmail. It has made tangible progress on its twin digital and green transition and introduced new policies and new funding instruments to sustain recovery and increase economic growth.”
As a consequence of Ireland being a de facto HQ for most of the major tech companies, Ireland plays a pivotal role in regulating and influencing the regulation of privacy, and in an increasingly AI-driven society and economy, Ireland could play a leadership role in shaping AI regulation and policies designed to protect the fundamental rights and freedoms of all EU citizens, but only if we remain at the heart of the digital revolution in Europe. Cyber-security infrastructure and systems managed through data centre networks are also essential for the protection of critical energy and utilities infrastructure, as reported recently by my colleague Sean McElligott New cybersecurity legislation – NIS2 Directive and the National Cyber Security Bill 2024 – Philip Lee LLP.
The European Commission’s Work Programme 2025 includes the following notable observations:
“The most important precondition for a thriving digital economy is reliable, high-capacity digital infrastructure. Therefore, the Digital Networks Act will create opportunities for cross-border network operation and service provision, enhance industry competitiveness and improve spectrum coordination.
Along with improved access to data, supported by a Cloud and AI Development Act, we will also work to make the most of the opportunities offered by artificial intelligence. This will be the aim of an AI Continent Action Plan covering AI Factories boosting competitive AI ecosystems in Europe as well as the Apply AI strategy. With the EU Quantum Strategy, followed by a Quantum Act, we will maintain a leading global position in this critical sector, safeguard strategic assets, interests, autonomy and security, and avoid a situation of strategic dependency on non-EU sources. The strategy will contribute to building our own capacities to research and develop quantum technologies, and produce devices and systems based on them.”
As the European Commission might say, Ireland has all the assets to lead in the global economy of tomorrow. Well, almost.
The demands of the digital and AI revolution on electricity are particularly acute for Ireland given our historically low industrial base. The share of electricity consumed by data centres has grown from 5% of total national demand in 2015 to 21% in 2023. Based on current contracted projects, it is estimated that this will increase to 30% by 2030. Electricity consumption from the residential sector was 28% in 2023.
High levels of electricity demand from the commercial and industrial sectors is normal in a busy economy. In Germany, for example, industry accounted for 42% of overall final electricity consumption in 2023, while the commercial / public sector accounted for 24.6%, and the residential sector accounted for 28%, similar to Ireland (Germany – Countries & Regions – IEA).
Where Ireland departs from our EU neighbours is in the proportion of electricity consumption, and the rate of increase of final electricity consumption, that is attributed to the data centre sector alone.
In Energy in Ireland 2024 Report, the Sustainable Energy Authority of Ireland (SEAI) noted that the combined net-demand for electricity from all other sectors of the Irish economy increased by just 2.8% between 2015-2023. Data centre sector demand was responsible for the remaining 88.2% increase in electricity demand over the same period. According to the Central Statistics Office, electricity demand from data centres has increased by 412% from 2015-2023.
As noted in the recitals to the EU Energy Efficiency Directive, within the EU data centres accounted for 2.7 % of total electricity demand in 2018 and is expected to reach 3.21 % by 2030 on then-current trajectories (although noting that the Commission’s Shaping Europe’s Digital Future is likely already out of date). It seems clear that as a percentage of overall electricity consumption, Ireland’s data centre sector is well above the EU average.
These issues are not new. The trend for additional electricity demand from data centres was discussed in detail in EirGrid’s prescient Ten Year Transmission Forecast Statement 2016, which noted the fact that the “modern world increasingly requires the retention and use of vast volumes of data, so this trend is likely to continue for the foreseeable future.” In 2017, the electrical demand and corresponding emissions impacts of the proposed (but since abandoned) Apple data centre in Athenry, County Galway, was considered in a judgment of the Irish High Court ([2017] IEHC 585).
Whether one views the growth of Ireland’s digital economy as a positive or negative largely depends on how you view the principle of economic growth and Ireland’s prosperity relative to our EU and UK neighbours. There is a clear economic opportunity cost if Ireland cannot accommodate additional digital infrastructure and meet electricity demand increases for the companies that are already invested in Ireland, and for those that would invest further if they could.
France has already announced investments in Artificial Intelligence Infrastructure worth €109 billion over the next few years (Le Monde, 10 February 2025), the UK Government has announced the AI Opportunities Action Plan on 13 January 2025.
It is far-fetched to believe that Ireland will host AI data centre infrastructure given the scale of electrical power needed, but the much more modest goals of the current Programme for Government should remain well within reach. These include scaling-up of investment in critical infrastructure, including the electricity grid, and expediting a private wire policy, to support continued investment the data centre sector while promoting and enhancing their use of renewable energy and energy efficient technology to reduce their emissions impacts.
It is within this challenging and dynamic contextual framework that the Irish Commission for Regulation of Utilities (CRU) published on Tuesday 18 February 2025 the draft of a much anticipated revised Large Energy User Connection Policy. The CRU’s proposed policy seeks to identify a narrow pathway for the connection of new data centres within the current and likely future system security and network constraints.
The CRU will accept written feedback on the proposed Policy at any time until 4 April 2025.
CRU’s Powers and Functions
One of the more surprising and commented-upon aspects of the proposed LEU Connection Policy is the CRU’s opinion that it lacks the statutory power to mandate that a new data centre shall deploy renewable energy. The legal view obtained by the CRU is that section 15 of the Climate Action and Low Carbon Development Act 2015, as amended, does not provide it with a sufficient legal basis to explicitly mandate specific emissions reduction and offsetting measures. Section 15 requires CRU and the electricity system operators (SOs) to perform their respective functions in a manner that is consistent with the furtherance of the national climate objective. The High Court in Coolglass v An Bord Pleanála indicated that this constitutes an obligation to comply unless it is not possible or practicable to do so, and that this is a very high standard only just falling short of unconditional compliance.
No doubt the CRU looked closely at its statutory powers and functions, as prescribed by section 9 of the Electricity Regulation Act 1999, as amended, and concluded that although the CRU has an obligation to ensure that grid connection policy takes account of renewable energy policy, and that this must be understood to include the national climate objective underpinned by section 15 of the Climate Action and Low Carbon Development Act 2015, this does not translate into a power to impose mandatory renewable energy obligations on data centres.
Furthermore, the absence of a clear renewables mandate in the proposed LEU Connections Policy would appear to shift the burden of section 15 of the Climate Action and Low Carbon Development Act 2015, as amended, wholly onto the much more adversarial and fragmented planning system, which appears to be a wasted opportunity for the CRU to take a firm policy position to inform that system.
Given the importance of decarbonisation, it is surprising that the Government has not given the CRU the necessary powers to require data centres to deploy renewable energy as part of the grid connection policy. For example, the German Energy Efficiency Act provides that all data centre operators, regardless of the date of commissioning, must cover 50% of the electricity consumption in their data centres from electricity from renewable energy as of 1 January 2024 and 100% as of 1 January 2027.
The Irish Government has the opportunity to adopt similar legislation which would provide a stronger mandate for the use of CPPAs. If anything, the proposed LEU Connection Policy weakens the State’s economic objectives to incentivise the CPPA market for renewables in Ireland. It is disappointing that this issue was not addressed by the Government in parallel with the CRU’s year-long consultation on the proposed new LEU Connection Policy.
Right of access to the electricity system
Another surprising feature of the proposed LEU Connection Policy is the position that, if the SO is unable to grant a connection offer to a data centre by reference to the assessment criteria, the application will be treated as terminated.
Ultimately the SOs are legally responsible for developing a safe, secure, reliable, economical and efficient electricity system with a view to ensuring that all reasonable demands for electricity are met and having due regard for the environment. The EU Electricity Market Directive and rules around electricity market design require the SO to provide access to the transmission and distribution systems, based on rules and criteria which are applied objectively and without discrimination as between users. The SO may refuse access where the system lacks the necessary capacity, but in that situation the SO is obliged to provide information on measures that would be necessary to reinforce the network. A refusal may also entitle the applicant to request permission to construct a direct line / private wire. As noted above, the Programme for Government indicates an objective to advance a private wire policy, the principles of which have already been set out in a Guiding Principles document published in July 2024. The proposed LEU Connection Policy skips these steps and treats refusal of access as cause for automatic termination of the application.
Transparency on locational constraints
The proposed data centre connection location will remain a crucial factor in assessing the connection application. Data centre locational drivers include fibre optic network connectivity, gas and water infrastructure, and proximity to existing data centre hubs, in addition to electricity connections. Therefore, the extent to which a data centre can offer flexibility in a constrained region should be an important consideration. The proposed LEU Connection Policy will require SOs to publish regular up-to-date locational information (existing and outlook) on available capacity on the network and network constraints.
It’s possible that future data centre locations will be informed by the designation of renewable acceleration areas and grid infrastructure areas in accordance with the revised EU Renewable Energy Directive.
Dispatchable Generation and/or Storage
The proposed LEU Connection Policy provides that new data centres will be required to provide dispatchable onsite or proximate generation and/or storage capacity which matches their maximum import capacity (MIC). The generators will be required to participate in the wholesale electricity market. Data centres providing such generation will not be required to meet mandatory demand curtailment. The ramping up of a new data centre demand connection towards full MIC is linked to achieving delivery of this infrastructure.
These measures could help to address concerns relating to security of supply and network constraints. It may also provide a signal for investment in renewable gases such as biomethane. However, this requirement is not without its challenges, including:
- the high capital costs associated with developing power and/or storage capacity;
- to the extent the dispatchable generation needs to be powered wholly or partly by fossil fuels, this may run contrary to the decarbonisation objectives set by data centres and underpinned by the EU Energy Efficiency Directive;
- understanding whether the dispatchable generation will also be subject to a secondary fuel obligation;
- spatial constraints for the development of onsite or proximate generating assets; and
- lack of clarity regarding the concept of ‘proximate’ particularly in the absence of a direct line / private wire policy.
Furthermore, developing and operating an asset in the electricity market is a different skillset to developing and operating a data centre. Navigating various regulatory processes such as generator connection policy, capacity market, electricity market, system services, EPA Licensing under the Industrial Emissions Directive and participation of such generators in the Emissions Trading Scheme, are not the core business of most digital asset owners and operators. Regulatory restrictions such as those relating to hybrid connections may also inhibit the optimal outcome.
Demand Flexibility
The proposed LEU Connection Policy would omit demand flexibility requirements for new data centre connections meeting the above criteria. However, the SO can require demand flexibility from data centres as are deemed necessary on a case-by-case basis. This need could be driven by factors such as the operational management of local system constraints and/or facilitate the integration of renewable energy on to the system.
Demand flexibility is an important lever available to data centres to mitigate emissions and network security concerns. Demand flexibility may reduce the need for fossil fuel based peaking power plants, promote security of supply and align with intermittent renewable energy supply. The various combinations that a data centre may voluntarily deploy to achieve flexibility and implement effective energy management should be recognised in the connection assessment, particularly in a constrained region.
Indeed, flexible connection agreements are contemplated by the EU Electricity Market Directive. It contemplates that Member States should develop a framework for SOs to offer the possibility of establishing flexible connection agreements in areas where there is limited or no network capacity available for new connections.
Renewable Energy and Greenhouse Gas Emissions
The proposed LEU Connection Policy provides that in lieu of imposing a renewable energy mandate (see above) data centres would self-report to the SOs annually on their use of renewable energy and the GHG emissions from their sites. The SO will annually publish information summarising this information provided by the data centres. This reporting obligation will sit alongside other reporting obligations relevant to data centres, such as the requirements under Article 12 of the EU Energy Efficiency Directive and the corresponding delegated regulation.
As noted above, data centres also providing onsite or proximate dispatchable generators will be licensed by the EPA under the Industrial Emissions Directive and will be required to purchase and surrender allowances under the EU Emissions Trading Scheme equal to the actual emissions of the generating station, and to provide the EPA with annual reporting on emissions under the GHG Emissions Regulations.
Additionally, the SEAI has published recommendations for the design and implementation of an LEU Electricity Emissions Reporting Framework. One of the proposals includes the deployment of an enhanced granular guarantee of origin scheme that time-stamps the hour of generation and the grid location. It remains to be seen whether a reporting framework is a strong enough signal to incentivise CPPAs with renewable energy generators, in the absence of a clear mandate to do so in the LEU Connection Policy, and given the onerous conditions being imposed on data centres to provide dispatchable onsite or proximate generation and participate in the wholesale electricity market.
Gas Connections
The proposed LEU Connection Policy includes no clear policies regarding connections to the gas network. The CRU notes that Gas Networks Ireland is obligated to have regard to the need to ensure the safety and security of the transmission, distribution and supply of natural gas. It is important that the role of gas connections (in tandem with connections to the electricity network) is not overlooked as part of the levers available to data centres to achieve flexibility in their operations and efficient management of their emissions.
Forward Planning for Data Centres (in the future)
The proposed LEU Connection Policy calls on the electricity and gas SOs to conduct market intelligence analysis to identify the likely future scale of data centre demand, to inform a forward planning approach to new connections. This approach would have had merit ten years ago, around the time that EirGrid and the High Court signalled alarm over rising electricity demands from the data centre sector. This particular policy proposal is unlikely to ease current investor concerns, or the burden on those operating within the planning system in trying to determine planning applications for new data centre developments.
Stakeholders are encouraged to provide their feedback to the CRU by 4 April 2025. We expect the CRU will then work towards publishing a final decision.
If you require any further information, please contact a member of our team below.
