Summary The EU faces a data centre capacity gap because computing infrastructure is currently limited and geographically concentrated in a few established hubs, while demand for AI workloads is surging. This shortage forces European enterprises to route critical workloads through foreign hyperscaler infrastructure, creating strategic dependencies. As proposed, the Cloud and AI Development Act (CADA) aims to triple EU capacity and harmonise deployment rules to close this gap, addressing the "significant threat" to the Union's digital transformation.

Detail

The European Union is currently grappling with a significant structural imbalance between its growing demand for computing power and its available domestic infrastructure. According to the explanatory memorandum of the proposed Cloud and AI Development Act (CADA), the Union's limited data centre capacity poses a "significant threat to its ability to benefit from the digital transformation and adopt AI-driven solutions." This is particularly acute for technologies requiring low-latency compute capacity, where the physical proximity of data centres to users is critical for performance.

The Nature of the Gap: Shortage and Dependence

The core of the problem is not just a lack of total capacity, but how that capacity is distributed and controlled. The explanatory memorandum notes that "several obstacles hinder the rapid deployment of data centres in the EU." Consequently, the current landscape is characterised by a "pronounced dependence on a limited pool of third-country providers."

Market data cited in the proposal illustrates the severity of this dependence. Currently, three non-EU hyperscalers control over 70% of the European cloud market. During the period from 2017 to 2022, the market share of EU-based providers decreased from 29% to 15% and has remained stagnant since. This reliance on foreign infrastructure means that critical European workloads are often routed through servers located outside the Union. This creates vulnerabilities related to operational discontinuity and exposes European users to the risks of third-country jurisdictions, where laws with extraterritorial effects may apply.

The explanatory memorandum further states that "computing infrastructures are no longer mere technical assets but have become strategic resources critical to the Union's economic security, sovereignty, resilience, and competitiveness." The lack of domestic capacity forces European enterprises to rely on foreign infrastructure, which undermines the Union's ability to retain control over its data and digital infrastructure.

Geographical Concentration and Fragmentation

A major driver of the capacity gap is the uneven geographical distribution of infrastructure. Recital 36 of the CADA proposal highlights that the "deployment of data centres across the Union is lagging and remains concentrated in a limited number of established hubs." This concentration creates structural imbalances between Member States. It leads to higher costs and increased latency for businesses and citizens in peripheral regions, unequal opportunities for local industries, and a slower pace of digital transformation in underserved areas.

Furthermore, the development of computing capacity currently takes place "along national lines," as noted in the legislative financial statement. Each Member State operates under a distinct framework with different processes and requirements for data centre deployment. This fragmentation reflects local conditions but risks creating regulatory disparities that undermine the internal market. Divergent national approaches to capacity expansion, sustainability requirements, and permitting procedures create a complex landscape for investors. This regulatory complexity slows down the roll-out of new facilities, exacerbating the shortage of computing capacity at the Union level.

The financial statement warns that national policies for data centre acceleration risk further fragmentation and a "race to the bottom" with respect to sustainability. Without a coordinated EU approach, the Union risks failing to achieve the balanced geographic deployment necessary for a resilient digital economy.

The Role of Article 15: Monitoring the Gap

To address these issues systematically, CADA introduces specific mechanisms for oversight. Article 15 establishes a framework for the Commission to monitor the Union's progress in increasing compute capacity. Under Article 15(1), the Commission is tasked with identifying and monitoring:

  • The compute capacity available in the Union, including edge computing capacity;
  • The volume of demand for data centre capacity;
  • The size of the capacity gap and underserved areas that could be identified by the Commission, in cooperation with the Member States.

This monitoring is not merely observational. Recital 44 states that such monitoring may be used by the Commission to inform possible recommendations. To guide Member States in accelerating the deployment of data centre capacity, the Commission may recommend measures to address the identified Union capacity gap. By identifying underserved areas, the Commission can help direct investment and policy focus to regions where new acceleration zones could be most effective.

Strategic Targets and the Path Forward

The proposal aims to address this by setting a target to triple EU capacity in the next five-to-seven years and reach the needed capacity by 2035. This ambitious goal relies on simplifying and harmonising the deployment of data centres EU-wide, ensuring their sustainability, and addressing the fragmented national approaches that currently slow down construction.

The explanatory memorandum emphasises that the proposal responds to the need for a coordinated 'ecosystem approach' to make the EU more competitive and resilient. It combines supply-side measures to boost domestic capabilities, demand-side measures to drive adoption, and enablers to foster innovation and investment into cloud and AI. The proposal places a specific focus on open source as a lever to boost technological sovereignty, in line with the EU Open Source Strategy.

What this means for you

For public-sector procurement officers, policy makers, and infrastructure investors, understanding the data centre capacity gap is essential for future-proofing digital strategies. The current shortage of computing capacity constrains the ability of public administrations and businesses to fully benefit from cloud and AI technologies, particularly those requiring high-performance computing.

As CADA progresses, public authorities will need to align their procurement strategies with the new sovereignty framework. The Act introduces a mechanism for Member States and Union entities to conduct risk assessments to determine which public sector activities require specific levels of Union assurance. This means that when procuring cloud services, you will need to consider not just price and performance, but also the strategic location of the data and the sovereignty level of the provider.

Furthermore, the establishment of data centre acceleration zones under CADA will change the landscape for local infrastructure planning. Public authorities will play a key role in designating these zones, ensuring they meet sustainability requirements and have sufficient energy grid capacity. Procurement officers should prepare for a shift towards multi-cloud strategies and a greater emphasis on European providers who can meet the new Union assurance levels. Monitoring the capacity gap reports from the Commission will help you understand regional supply constraints and plan accordingly for critical digital services.

For data centre operators and investors, the proposal offers a harmonised framework to reduce regulatory complexity. The designation of acceleration zones and the potential for strategic project status could provide streamlined permitting processes and access to support measures, provided projects meet sustainability and innovation criteria.

Common misconceptions

Misconception 1: The EU has enough data centres, but they are just expensive. While cost is a factor, the primary issue is a structural shortage of capacity, particularly for low-latency and AI-optimised workloads. The explanatory memorandum explicitly states that the "Union's limited data centre capacity poses a significant threat" to digital transformation. The gap is both quantitative (not enough total capacity) and qualitative (not enough capacity in the right locations or with the right sovereignty guarantees).

Misconception 2: National solutions are sufficient to close the gap. The proposal argues that EU-level action is necessary because national policies risk further fragmentation and a "race to the bottom" regarding sustainability. The explanatory memorandum notes that "EU action has a clear added value in addressing the problem of limited and geographically concentrated availability of computing capacity." A coordinated approach is needed to ensure balanced geographical deployment and avoid regulatory disparities that hinder cross-border operations.

Misconception 3: The capacity gap is only about storage. The gap is increasingly about compute capacity, specifically for AI training and inference. The surge in AI workloads has created an unprecedented demand for computational capabilities. As the explanatory memorandum states, "computing infrastructures are no longer mere technical assets but have become strategic resources." The focus of CADA is on increasing "computing capacity" and "AI developed and deployed in the EU," not just raw data storage.

Related

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