A second energy crisis in less than four years is further eroding Europes industrial competitiveness, as rising energy costs once again undermine the continents ambitions to compete with the United States and China in attracting artificial intelligence investments and data centers.

Energy prices in Europe remain significantly higher than in the United States or Asia, while the stability of electricity grids is increasingly fragile and requires massive upgrades and investment. This leaves many European countries struggling to compete as destinations for new AI facilities and data centers.

In addition, European power grids are already heavily congested, meaning that connecting new projects to the network can take up to ten years in some regions. In the world of AI, where progress is measured in days, ten years is an enormous amount of time.

Rising energy costs in Europe

Europe began losing competitiveness in 2022, when the energy crisis triggered by Russias invasion of Ukraine caused a sharp surge in gas and electricity prices.

After two years of relative price stability although still far above pre-crisis levels the latest energy shock has pushed European energy costs sharply higher once again.

Energy-intensive industries across Europe are facing renewed pressure from soaring gas and electricity prices. Developers of AI infrastructure and data centers, which require enormous amounts of power, are also factoring electricity costs, inflationary pressures, and geographic location into their investment decisions, and Europe is often not the preferred destination.

Although electricity prices have risen globally as demand recovered across advanced economies after years of stagnation, European prices remain far above those in the United States and China.

Even before concerns emerged over a possible months-long closure of the Strait of Hormuz, electricity prices for energy-intensive industries in the European Union remained elevated last year, according to the International Energy Agencys annual Electricity 2026 report published earlier this year.

The report stated that electricity prices in the European Union during 2025 remained more than double US levels and roughly 50% higher than prices in China, adding further pressure on Europes energy-intensive industries.

Average wholesale electricity prices in the EU also rose around 10% year-on-year during 2025 to approximately $95 per megawatt-hour, alongside a 9% increase in Dutch TTF natural gas prices.

According to the agency, Europe maintained the highest wholesale electricity prices among the markets included in the study during 2025, with prices roughly double those in the United States and India, and significantly above levels in Australia and Japan.

The Middle East crisis and the disappearance of nearly 20% of global LNG flows have triggered another surge in European gas and electricity prices this year.

The European Commission is racing to implement plans aimed at decoupling electricity prices from gas prices. However, the reality amid the worst disruption in oil and gas markets remains that European electricity prices are still heavily tied to natural gas, despite major renewable energy expansion. As a result, wholesale electricity prices remain far higher than those in the United States and China, Europes main rivals in the AI race.

The United States leads global data center electricity demand

Data centers currently consume around 2% of global electricity demand, up from 1.7% in 2024 and 1.9% in mid-2025, according to a report released this month by the International Data Center Authority.

The United States remains the worlds largest data center market, accounting for 43% of global consumption, while data centers consume around 6% of total US electricity demand.

China ranks second, with data centers totaling 8.5 gigawatts in capacity and consuming roughly 0.8% of the countrys electricity.

Germany, the European Unions largest economy, follows with 5.5 gigawatts of data center capacity, but these facilities consume approximately 9.5% of the countrys total electricity demand an exceptionally high share.

High energy costs in Germany and the United Kingdom could discourage new data center developers.

Chris Seiple, Vice Chairman of Power and Renewables at Wood Mackenzie, told CNBC that Europe is losing the AI race on three main fronts:

Energy costs

Geographic location of data center developers

Speed of execution and grid connection

A recent study conducted last week by CBRE also showed that the cost of securing operational capacity for data centers across Europes five largest markets Frankfurt, London, Amsterdam, Dublin, and Paris is expected to rise by an average of 12% during 2026 due to supply constraints and higher development costs.

Kevin Restivo, Head of European Data Center Research at CBRE, said larger and more technically complex data centers require advanced cooling systems and high-specification infrastructure, significantly increasing construction costs.

He added that providers have already started passing these rising costs on to customers as demand strengthens and supply tightens.

European markets with a relative advantage

However, Europe is not equal when it comes to energy costs and access to electricity markets. Analysts point out that the Nordic countries Norway, Sweden, and Denmark as well as France, enjoy a relative advantage because electricity prices there remain lower compared with the rest of Europe.

The Nordic countries rely heavily on hydropower and renewable energy sources, while France remains one of Europes largest producers of nuclear energy.

This means natural gas plays only a limited or nonexistent role in their electricity pricing systems, providing them with relative protection from fossil fuel price volatility.