Summary Under the proposed Cloud and AI Development Act (CADA), colocation data centres are not treated as a distinct legal category but are subject to the same deployment frameworks as other data centre operators. However, the proposal creates a specific pathway for strategic project designation that heavily favours facilities integrating energy infrastructure. Article 14(1)(c) explicitly identifies projects involving the "colocation of large clean energy generation and storage facilities" as a primary criterion for designation, provided they contribute to the "security, safety, and stability of the electricity grid." For colocation providers, this means that merely hosting tenants is insufficient for strategic status; the facility must actively address electricity system needs as evaluated by the relevant system operator. Achieving this designation would unlock accelerated permitting, potential state aid, and a "competitiveness seal," as proposed in the text.

Detail

The Cloud and AI Development Act (CADA), as proposed in COM(2026) 502 final, seeks to triple the EU's data centre capacity by 2035 while ensuring sustainability and reducing dependencies. To achieve this, the proposal establishes a dual-track mechanism for deployment: Data Centre Acceleration Zones (the baseline regulatory environment) and Data Centre Strategic Projects (a competitive designation for high-impact infrastructure).

For colocation providers, architects, and investors, the distinction between these two tracks is critical. While acceleration zones provide streamlined permitting, the Strategic Project designation under Article 14 offers significant additional advantages, with energy integration serving as the primary differentiator.

The Baseline: Acceleration Zones and Permitting

Under Title III, Chapter I of the proposal, Member States are obliged to designate "data centre acceleration zones" where data centre capacity is being deployed (Article 10). These zones are designed to reduce regulatory fragmentation and accelerate deployment.

For any data centre project, including colocation facilities, located within an acceleration zone, the following baseline conditions apply:

  1. Sustainability Mandates: Member States must use the key performance indicators (KPIs) specified in Delegated Regulation (EU) 2024/1364 when setting sustainability requirements (Article 11). This ensures that colocation operators align their Power Usage Effectiveness (PUE) and water usage metrics with EU-wide standards, rather than relying on national variations.
  2. Single Information Points: Operators have the right to be assisted by a single information point throughout the project lifecycle. This point coordinates spatial planning, environmental assessments, and grid connections (Article 12).
  3. Aggregated Baseline Permits: Member States must issue an aggregated baseline permit for the zone, covering common administrative authorisations. This significantly reduces the time required for individual projects, with the total permit-granting procedure capped at 12 months from the submission of a comprehensive application (Article 13).

However, acceleration zones alone do not guarantee preferential treatment for specific types of infrastructure or access to Union-level funding. That is where the "Strategic Project" designation becomes pivotal.

Strategic Projects: The Advantage of Colocation with Clean Energy

Article 14 establishes the mechanism for the Commission to designate certain data centre projects as "strategic projects." This designation is not automatic; it requires an open call for expressions of interest and the fulfilment of at least two specific criteria listed in Article 14(1).

For colocation providers, Article 14(1)(c) is the most relevant provision. It states that a project may be designated as strategic if:

"(c) the project contributes to the security, safety, and stability of the electricity grid and contributes to the electricity system needs as evaluated by the relevant system operator, in particular for projects involving the colocation of large clean energy generation and storage facilities;"

This provision signals a clear policy shift: the EU is not just looking for compute capacity; it is looking for grid-friendly compute capacity. The proposal explicitly links strategic status to the ability of a facility to mitigate grid congestion and support renewable integration.

The "Colocation" Criterion in Context

The text of Article 14(1)(c) does not merely suggest that clean energy is "nice to have." It frames the colocation of large clean energy generation and storage facilities as the primary example of how a project can contribute to grid stability.

  • Grid System Needs: The criterion requires the project to address "electricity system needs as evaluated by the relevant system operator." This implies that a colocation facility must demonstrate, through technical analysis, that its on-site generation and storage actively solve a specific grid problem (e.g., peak shaving, frequency regulation, or congestion management) identified by the Transmission System Operator (TSO) or Distribution System Operator (DSO).
  • Large-Scale Integration: The use of the term "large clean energy generation and storage facilities" suggests that small-scale rooftop solar or minor battery backups may not suffice. The proposal envisions significant on-site or immediate-proximity infrastructure that can materially impact the grid's security and safety.
  • Rationale: As outlined in Recital 38, "sufficient and timely energy supply to the acceleration zones constitutes a fundamental enabling condition." By collocateing generation and storage, a data centre operator directly mitigates grid congestion and supports the integration of renewable energy, thereby contributing to the "electricity system needs as evaluated by the relevant system operator."

Why This Matters for Colocation Operators

Colocation models often involve multiple tenants sharing infrastructure. Under CADA, the "project" is the data centre facility itself. Therefore, the colocation provider (the owner/operator of the physical infrastructure) is the entity that must demonstrate compliance with the strategic criteria.

If a colocation facility is designated as a strategic project under Article 14, it gains several distinct advantages:

  1. State Aid Eligibility: Recital 42 states that Member States may apply support measures in a proportionate manner to strategic projects, without prejudice to Articles 107 and 108 TFEU. This can include tax incentives or direct subsidies for the construction of the colocation facility and its associated energy infrastructure.
  2. Competitiveness Seal: Strategic projects may be granted the "competitiveness seal" under the proposed European Competitiveness Fund (ECF), recognising them as high-quality projects contributing to EU objectives (Recital 43).
  3. Accelerated Environmental Assessments: Data centre projects in acceleration zones are considered strategic projects within the meaning of the upcoming Regulation on speeding-up environmental assessments, granting them access to a dedicated toolbox for faster environmental clearances (Recital 41).

Practical Implications for Design and Architecture

For CTOs and architects, Article 14(1)(c) imposes a design constraint: energy integration is no longer optional for strategic relevance. To qualify as a strategic project, the colocation facility must demonstrably contribute to grid stability. This requires:

  • On-site Generation: Integrating renewable energy sources (e.g., solar, wind, or potentially small modular reactors as mentioned in Article 4(1)(e)) directly into the data centre footprint or immediate vicinity.
  • Storage Integration: Deploying battery storage systems to manage peak loads and provide grid services (such as frequency response), ensuring the facility acts as a flexible asset rather than a passive load.
  • System Operator Alignment: Engaging early with the relevant transmission or distribution system operator to prove that the project addresses specific, evaluated electricity system needs. The proposal requires that the project "contributes to the electricity system needs as evaluated by the relevant system operator," making this evaluation a prerequisite for the designation.

Without these elements, a colocation data centre may still operate within an acceleration zone and benefit from streamlined permitting (Article 13), but it will miss out on the higher-level strategic designation and associated financial support mechanisms.

What this means for you

For CTOs and Architects: When designing new colocation facilities, you must move beyond traditional PUE optimisation. You need to architect your facility as a prosumer of energy. This means including space and capacity for large-scale clean energy generation and storage in your initial site plans. If your project does not include these elements, it may struggle to meet the criteria for strategic project designation under Article 14(1)(c), potentially limiting access to state aid and competitiveness seals.

For SMEs and Investors: Evaluate the energy infrastructure of your potential colocation providers. A provider that has integrated clean energy and storage is not only more sustainable but also better positioned to secure EU strategic project status. This reduces regulatory risk and may lower long-term operational costs through state aid support. When bidding for sites, prioritise locations within designated acceleration zones that have clear pathways for grid connection and renewable integration.

For Legal and Compliance Teams: Prepare for the open calls for expressions of interest for strategic projects. Ensure your documentation clearly demonstrates how your colocation project contributes to grid stability and meets the specific needs evaluated by the system operator. This evidence will be critical for satisfying Article 14(1)(c).

Common misconceptions

Misconception 1: Colocation data centres are exempt from CADA requirements. Reality: CADA applies to all data centres, regardless of their business model (hyperscale, colocation, or edge). There is no separate regulatory track for colocation providers. They must comply with the same sustainability and permitting rules as any other data centre operator.

Misconception 2: Any data centre in an acceleration zone is automatically a "strategic project." Reality: Being in an acceleration zone is a prerequisite for streamlined permitting, but it does not confer "strategic project" status. Strategic designation under Article 14 is a separate, competitive process requiring the fulfilment of specific criteria, such as the colocation of clean energy generation and storage under Article 14(1)(c).

Misconception 3: Grid connection is solely the responsibility of the system operator. Reality: While system operators manage the grid, CADA places an obligation on Member States and data centre operators to coordinate. Article 10 requires Member States to conduct comprehensive analyses of energy needs and impacts. Operators must actively engage in this process to demonstrate that their project contributes to grid stability, which is a key criterion for strategic designation.

Related

This is general information about a draft EU regulation, not legal advice.