All views expressed are the author’s alone. They do not necessarily reflect the views of his employer or any other entity.
Last week, Microsoft signed a deal to restart the Three Mile Island nuclear plant and become its sole customer. This is not just striking because a tech company is appropriating a multi-hundred megawatt facility. Three Mile Island was the site of the most severe meltdown the world had seen until Chernobyl. That the plant is being restarted illustrates the lengths to which the US is going to make sure power is not a constraint on growth. It should be the model for Europe's approach.
Power problems
Today, the EU is in a serious energy hole. Energy is the basic input needed to transform resources into goods and services. There's a strong correlation between energy consumption and prosperity globally — few indicators serve as better proxies for economic well-being than energy use. There are no high-income, low-energy countries.
Part of the reason is that richer countries can afford to consume more and therefore also use more energy. But more affordable energy also drives growth and prosperity. The fact that European industrial electricity prices are two to three times higher than those in the United States challenges the continent's competitiveness and prosperity.1 Energy consumption per capita in the United States is roughly two times higher than the average in Europe.2
European energy prices rose further in recent years due to the energy shock from the war in Ukraine. An industry's energy intensity was a strong predictor of how badly it has fared in the last three years across the continent. The most energy-intensive industries are the ones which have lost the most.3 Production has declined by as much as 15% in some sectors.
The high prices hurt all kinds of firms. Half of European companies indicated in a 2023 survey that high energy prices were inhibiting greater investment. That is thirty percentage points higher than the response given by US firms.4 We can see the gap in production expenses as well: 53% of the cost of manufacturing steel in Europe is energy, compared to just 30% in the United States.5
Expensive power hurts software
Much of this is a familiar story. But high power costs are spilling over into the world of software and technology.
Power is the bottleneck for data centers. The electricity needed to train the most advanced AI is doubling every year. At current rates, multi-gigawatt data centers are on the cards before the end of the decade.6 For comparison, France has 135 GW installed capacity total.
An estimated 90% of the operating costs of a data center come from the electricity bill. Electricity wholesale prices in Europe are around 20 cents per kilowatt-hour. This is close to three times the 7 cents that you will find in the United States. It is six times what you might find in one of the Gulf countries. Heavily subsidized AI projects in some nations are reportedly receiving prices as low as one cent per kilowatt-hour. If you were a business considering where to locate, you could shave off 85% of your operating costs by moving from Europe to such a state.
Electricity sticker prices also affect data centers in Europe indirectly. Multiple European countries have imposed heavy limits on data center construction in order to conserve power. In the Netherlands, there is almost a complete ban on all data centers over 70 megawatts.7 As prices for energy rise, policymakers ration it and apportion it to the consumer of choice.
It is estimated that just 4% of all AI chips are currently installed in Europe, and that number is rapidly decreasing. If innovation relies on data centers, Europe’s electricity prices will ruin any attempt by its leaders to stay relevant.8
The price gap
Europe needs rapid solutions to drive down the price of energy. Unfortunately a number of reasons for Europe’s power problems are structural.
While the United States has gone from being the world's largest energy importer to one of largest exporters in just two decades, Europe (largely) does not have domestic fossil fuels.9
The EU has also chosen to have higher prices for environmental reasons. The EU's Emissions Trading System results in carbon costs of €20-25/MWh for gas-fired generation, compared to €10-15/MWh in California.10 This alone accounts for 10% of EU industrial retail electricity prices.11
The US and Europe have taken diametrically opposing paths to fighting climate change, as identified by Clausing and Wolfram (2023). The US, through the Inflation Reduction Act, is choosing to subsidize its transition, by giving enormous subsidies to firms to decarbonize. The EU is choosing to increase the cost of fossil fuels through a Cap and Trade system. That means the US has reduced the burden for its industry in order to fight climate change, while the EU has increased the cost.
Even if there was a full-blown effort to construct new capacity, enormous hurdles would remain. Most renewables are intermittent (e.g., when the sun doesn't shine, there is no solar) and thus not suitable for certain workloads like AI.12 There are large physical infrastructure bottlenecks — Draghi estimates investments of over €500 billion are needed this decade to address these issues.13 Nuclear appeals, particularly the fact that it supplies baseload (i.e. consistent) power and has no emissions. But constructing new nuclear power plants, as some countries are trying to do, currently costs tens of billions of dollars and takes decades.
Why build if you can refurbish
Rather than do that, Europe can spend single digit billions to bring old ones online in years. Germany had three plants shut down last year with a combined capacity of close to 4 gigawatts — more than the power OpenAI’s Sam Altman is demanding for his most ambitious data center. There are eight reactors in Germany with a combined capacity of 10.7 gigawatts where removal of critical components has yet to start or is in early stages.14 Bringing those plants online would be good for around 18% of Germany’s total energy needs. Holding demand constant, that would bring about a 12% drop in energy prices.15
Recommissioning those plants would be unorthodox but not unprecedented. The Three Mile Island Unit I being recommissioned by Microsoft was closed in 2019. The American Browns Ferry nuclear plant was shuttered in 1985. Two reactors were brought back online in 1992 and 1995, and one reactor was even brought back in 2007, a full 22 years after it was closed.
The reason then was simple economics: the Tennessee Valley Authority, which operated the reactors, calculated that the $1.8 billion it would cost to bring back the 1.2 GW facility was more affordable than alternative investments.
A similar approach should be urgently considered in Europe. The eight Germany plants that are easiest to restart are all younger 43 years old — the average reactor age in the U.S. They are also interconnected with the grid, and thus avoid the major infrastructure bottlenecks that slow down new energy projects.
A 2023 report by Radiant Energy, a research group, estimated that restarting each reactor would cost between €100-200 million euros and would take around a year.16 Once restarted, the plants would be able to produce power at 25 €/MWh — a fraction of the 120 €/MWh operating cost of German coal plants.17 A combined cycle gas plant can cost over €1 billion per gigawatt up front, and has much higher operating costs.
This strategy should not be restricted to Germany alone. In the last 24 months, Belgium closed down two good reactors with a combined capacity of two gigawatts. In December of last year, Spain committed itself to phasing out its remaining reactors, good for seven gigawatts. Just reversing these three moves would bring close to 20 GW of baseload power online in Europe — currently enough for 100 of the world’s largest AI datacenters
If this is to work, urgency will be required. Te cost of restarting nuclear plants will grow as time elapses, particularly as the workforce with expertise is phased out and retires. Several of Germany’s easiest reactors to recommission received licenses in recent months to start removal of critical components. Returning them to use becomes increasingly difficult as that process accelerates.
We should not resign ourselves to energy poverty
Nuclear power offers right now the best combination of the key four characteristics we demand from our energy — price, availability, environment, and security. It has as low an emissions footprint as wind, and lower than solar. If Germany had not phased out nuclear, 74% of power would have been clean, rather than 50%.
This should be part of a larger energy strategy which aggressively tries to drive down prices. The data center boom in the United States is being driven by gas. In Virginia, the state that is home to a vast majority of US data centers, the major utility announced that it may have to build up to eight new gas plants to meet demand. While gas is clearly the wrong option for Europe, the urgency is worth emulating.
In a meeting in the White House two weeks ago, the Biden Administration promised to use the army to accelerate permitting for data centers, repurpose old coal sites for data centers, and to use the Department of Energy to help ensure reliable power. Despite being far ahead in computing, the US is behaving like a disruptor. Meanwhile, Brussels, which has no AI infrastructure to speak of, behaves like a cautious incumbent.
Energy is at the root of Europe's competitiveness challenges. Brussels should show the same enthusiasm for rapidly driving down prices as it did for the Green New Deal. Electricity should be both cheap and clean. Recommissioning old nuclear reactors is one easy, short-term path to getting there.
References
Clausing, Kimberly A. & Catherine Wolfram. 2023. "Carbon Border Adjustments, Climate Clubs, and Subsidy Races When Climate Policies Vary" Journal of Economic Perspectives, Vol. 37, No. 3, Summer 2023 (pp. 137-62)
Draghi, Mario. 2024a. "EU Competitiveness: A competitiveness strategy for Europe" EU Commission. https://commission.europa.eu/topics/strengthening-european-competitiveness/eu-competitiveness-looking-ahead_en,
Draghi, Mario. 2024b. "EU Competitiveness: In-depth analysis and recommendations" EU Commission. https://commission.europa.eu/topics/strengthening-european-competitiveness/eu-competitiveness-looking-ahead_en,
European Investment Bank. 2023. "EIB Investment Survey 2023: European Union Overview" European Investment Bank. https://www.eib.org/attachments/lucalli/20230285_econ_eibis_2023_eu_en.pdf.
Radiant Energy Group. 2023. "Restart of Germany's Reactors: Can it be Done?" Radiant Energy Group. July 11, 2023. https://www.radiantenergygroup.com/reports/restart-of-germany-reactors-can-it-be-done.
U.S. Energy Information Administration; Energy Institute; Various sources. 2024. "Per capita energy use" Our World in Data. https://ourworldindata.org/grapher/per-capita-energy-use, with major processing by Our World in Data.
Draghi, Mario. 2024a. "EU Competitiveness: A competitiveness strategy for Europe" EU Commission. https://commission.europa.eu/topics/strengthening-european-competitiveness/eu-competitiveness-looking-ahead_en, 2.
U.S. Energy Information Administration; Energy Institute; Various sources. 2024. "Per capita energy use" Our World in Data. https://ourworldindata.org/grapher/per-capita-energy-use, with major processing by Our World in Data.
Draghi, Mario. 2024a. "EU Competitiveness: A competitiveness strategy for Europe" EU Commission. https://commission.europa.eu/topics/strengthening-european-competitiveness/eu-competitiveness-looking-ahead_en, 35.
European Investment Bank. 2023. "EIB Investment Survey 2023: European Union Overview" European Investment Bank. https://www.eib.org/attachments/lucalli/20230285_econ_eibis_2023_eu_en.pdf.
Draghi, Mario. 2024b. "EU Competitiveness: In-depth analysis and recommendations" EU Commission. https://commission.europa.eu/topics/strengthening-european-competitiveness/eu-competitiveness-looking-ahead_en, 7.
Sam Altman recently pitched a plan to the White House for 5GW data centers at the cost of $100 billion each.
It is illustrative of the importance of energy to data centers that their size is often quantified by their peak electricity demand.
One potential answer to this argument is that the EU should simply outsource data centers to energy rich countries and be done with it. From an economic perspective, it would seem to be a matter of comparative advantage. But outsourcing data centers would leave the EU with no control over AI and critical digital infrastructure and make the continent extremely vulnerable. Reduced control over physical security measures would leave European servers exposed. Outsourcing could give the host government enormous potential leverage in negotiations or conflicts – imagine if Russia had been (for energy reasons) the main host of EU data during 2022.
There could be large shale gas reserves, but little exploration has taken place and fracking is forbidden in most of Western Europe
Draghi, Mario. 2024b. "EU Competitiveness: In-depth analysis and recommendations" EU Commission. https://commission.europa.eu/topics/strengthening-european-competitiveness/eu-competitiveness-looking-ahead_en, 12.
Draghi, Mario. 2024b. "EU Competitiveness: In-depth analysis and recommendations" EU Commission. https://commission.europa.eu/topics/strengthening-european-competitiveness/eu-competitiveness-looking-ahead_en, 19.
Long Duration Energy Storage, while rapidly improving, is not close to being sufficient to meet multi-gigawatt localized energy requirements.
Draghi, Mario. 2024b. "EU Competitiveness: In-depth analysis and recommendations" EU Commission. https://commission.europa.eu/topics/strengthening-european-competitiveness/eu-competitiveness-looking-ahead_en, 1.
At least, as of Spring 2023.
Using 2022 generation mixes and prices. Initially, the price-setting technology is: Gas: 57%; Coal: 28%; RES: 12%; Biomass: 3%. The price decrease was calculated by simulating the addition of 83 TWh of nuclear power to Germany's grid. This displaces high-cost gas generation, reducing its price-setting share from 57% to 2%, while coal becomes the primary price-setter at 83%. Using adjusted marginal costs and the new generation mix, the average wholesale price drops from 201.65 €/MWh to 174.15 €/MWh, a reduction of 27.5 €/MWh or 13.6%. The 2024 generation mix may be more favourable still. Electricity demand is very inelastic in the short run.
Radiant Energy Group. 2023. "Restart of Germany's Reactors: Can it be Done?" Radiant Energy Group. July 11, 2023.
Radiant Energy Group. 2023. "Restart of Germany's Reactors: Can it be Done?" Radiant Energy Group. July 11, 2023.