Europe Is Losing The AI Race as Energy Costs Soar

Tsvetana Paraskova

Tue, May 19, 2026 at 4:00 PM EDT 5 min read

The second energy crisis in four years is further eroding Europe’s industrial competitiveness as energy costs are spiking again and undermining the European ambition to compete with the United States and China to attract AI and data center developments.

Energy costs in Europe are so much higher than in the U.S. or Asia, and the grid stability is so fragile and in dire need of modernization and upgrades that many European countries are out of the competition for hosting new data/AI centers. In addition, Europe’s already congested grid means new connections could take up to 10 years in some places to hook up to the grid. Ten years is a millennium in the AI world, where advances are measured in days.

Europe’s Energy Costs Surge

Europe started losing competitiveness as early as in 2022, when the energy crisis following the Russian invasion of Ukraine hiked gas and power costs. After two years of relative stability in prices – still at levels much higher than before the crisis – the new energy crisis is raising European energy costs again.

The energy-intensive industries in Europe are once again hamstrung by the spike in gas and electricity prices. Developers of energy-intensive data centers and AI infrastructure are looking at power costs and inflationary pressures, as well as geography, when they pick areas to position their new developments. And Europe is rarely the first choice.

Electricity prices are going up globally, due to the return to demand in developed economies after years of stagnation, but the prices in Europe exceed those in the U.S. or China, by a mile.

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Last year, before any indication that the Strait of Hormuz could be closed for months, electricity prices for energy?intensive industries in the European Union remained elevated, the International Energy Agency (IEA) said in its annual Electricity 2026 report earlier this year.

EU electricity prices again averaged over twice U.S. levels and nearly 50% above those in China, similar to 2024, adding competitive pressure to the bloc’s energy?intensive industries, the IEA said weeks before the Iran war began.

The average EU wholesale price in 2025 was up by some 10% year over year to about $95/MWh, in line with the 9% increase in the Title Transfer Facility (TTF) natural gas price at the trading hub in the Netherlands. Average EU wholesale electricity price remained the highest among the markets the IEA analyzed in 2025 – roughly twice that of the United States and India, and markedly above levels in Australia (65% higher) and Japan (25% higher). Higher gas prices in Europe put upward pressure on power futures in 2025.