When looking at data center waste heat recovery, it’s important to recognize the major shift that has taken place in recent times: from being a non-essential, supplementary option to becoming an imperative from a regulatory and economic perspective.
This is particularly true in Europe, where the Energy Efficiency Directive has established that data centers above 1 MW must assess the feasibility of waste heat recovery through a cost-benefit analysis. A step forward that is accompanied by additional measures that seek to address data centers’ sustainability, as these infrastructures' environmental and social impacts are increasingly scrutinized.
In this new era, data centers must now be designed not only for efficient cooling but also for thermal energy recovery, including the possibility of integrating data centers into district heating networks.
A change in perspective where the large amounts of heat generated by IT equipment and servers are no longer wasted and a reason for public backlash, but become a useful resource. A potential landscape where synergies exist between well-designed data centers and their surrounding communities, that see how what could be wasted heat becomes a resource that helps heat residential and commercial buildings.
The potential is major: in a model published by Energie Schweiz (Energy Switzerland), a large share (often above 80%) of electricity consumption can theoretically be recovered as heat.
As Julio Herrero, ARANER’s CSO for Data Centers puts it: "The data center's heat needs to be rejected 24/7, no matter what. You can recover it or just waste it. In ARANER, we decided to use it."
But what does the EU Energy Efficiency Directive say exactly? How is data center waste heat recovery potential assessed in this context, and what are the fundamentals to design data center heat recovery?
Building from ARANER’s expertise in thermal engineering for data centers, the following article addresses what’s next for data center district heating integration in Europe.
Why is waste heat recovery becoming critical in high-density data centers?
- AI and HPC increase rack densities while thermal loads per square meter also rise. The rise of AI, cloud computing and high-performance computing has meant an escalation of demand for data centers’ capacities. At a moment where densities of more than 100 kW per rack are becoming prevalent, thermal load management is being forced to evolve to ensure data center continuity. This has moved achieving efficiency in thermal management to the forefront, with cooling now being one of the main determinants of data center design as well as a key element to achieve energy efficiency and overall viability.
- Energy efficiency pressure. Data centers are calculated to have accounted for 1.5% of the world’s electricity consumption in 2024, with this figure being expected to more than double by 2030, as per IEA figures. This positions data centers as a critical front line for achieving climate targets that are progressively stringent and subject to regulatory enforcement. As the sustainability of digital infrastructure is under increasing scrutiny by society and governmental institutions, data center district heating integration emerges as an ally to enhance cooling efficiency and build synergies based on resources that would be wasted otherwise.
- European decarbonization targets. Looking at the European data center context specifically, frameworks such as the Energy Efficiency Directive and the Climate Neutral Data center Pact are introducing measures that directly focus on reducing data centers’ environmental impact. As seen in detail below in this article, these measures include monitoring and reporting obligations around indicators such as PUE and WUE, as well as heat reuse targets. It’s a shift towards greater data center environmental transparency, and one that is quickly becoming a central element in gaining permits, financing, and social acceptance.
In this context, data center projects are pushed to include waste heat recovery as a core strategy to achieve improved energy efficiency and better sustainability positioning.
Thanks to this new model, data centers integrate within district heating networks, reusing heat productively and ensuring a reduction in cooling costs, carbon emissions and fossil fuel dependency related to heating.
With typical air-cooled exhaust temperatures being around 30-40°C, aiding technologies such as large-scale heat pumps are now key allies to achieve so, elevating temperatures to district-heating requirements (typically around 70-90º).
Is waste heat recovery mandatory for data centers in Europe?
The law is clear: under the Energy Efficiency Directive (EU) 2023/1791, data centers with a total rated power greater than 1 MW must assess the feasibility of waste heat recovery through a cost-benefit analysis.
In practice, the directive means the aforementioned data centers should implement waste heat recovery unless there’s demonstrated evidence that it is technically or economically unfeasible.
In order to do so, a cost-benefit analysis (or CBA) should address the technical feasibility and cost-efficiency of waste heat recovery for each specific case.
European regulations for data centers: the Energy Efficiency Directive and beyond
We’ve seen how compliance for European data centers now requires a documented assessment of waste heat reuse potential. Beyond waste heat recovery obligations, it’s important to assess other implications for data centers in the EU legal landscape.
Firstly, the European Energy Efficiency Directive (EED Recast 2023) also establishes that data centers above 500 kW in total rated power must comply with a series of reporting obligations, starting as of September 2024 and in May every year thereafter. This implies making general information about the data center public (such as ownership and operator data), but also sharing details involving technical information and energy performance indicators.
Additionally, these reporting obligations imply disclosing a series of sustainability KPIs, which aim to function as a common framework for assessing data centers’ environmental impact. As per the law, data centers must monitor and share data on their energy consumption, water usage, and renewable energy use, among other key environmental factors. Among these KPIs is also the Energy Reuse Factor, aiming at quantifying how much of the energy consumed in a data center is reused for external purposes, such as district heating, industrial processes, or agricultural applications.
These KPIs are collected and published by a European database prepared by the EU Commission. Furthermore, the data will be analysed by the Commission, with plans to implement a Data Center Energy Efficiency Package from 2026 onwards that will include the following:
- An assessment of the data submitted under the reporting scheme for data centers.
- A rating scheme for data centers in Europe, creating a label that includes information about each facility’s energy and water use.
- The launch of minimum performance standards for data centers in Europe.
This norm must be understood as part of a wider trend within European legislation to push for greater transparency when it comes to the environmental impact of economic activities, in line with other measures such as the EU taxonomy for sustainable activities.
The Strategic Roadmap for Digitalisation and AI in the Energy Sector and the Cloud and AI Development Act are also expected to shape the regulatory framework for the digital economy, potentially having an impact on data centers.
When is data center heat recovery technically viable?
The choice of cooling technique: air cooling vs liquid cooling
Output temperatures represent a key challenge for heat reuse, with the choice of cooling technique playing a key role here:
- Air cooling typically produces what is known as low-grade heat. While industrial heat pumps can be employed to upgrade this heat and make it reusable, the greater the difference in temperature, the greater impact this will have on the economic and technical viability of waste heat recovery.
- Because liquids are better heat conductors, they can capture higher-grade heat.
As such, data centers employing liquid cooling are better positioned to improve their Energy Reuse Factor (ERF).
Temperature upgrade requirements
Technical viability will also greatly depend on what temperature upgrades are necessary, and the type of equipment used for it.
This involves looking at the capacity to match waste heat recovery with local heating demand, while also accounting for the seasonal differences between summer and winter. During summer, data centers typically produce more waste heat than it is demanded for heating; meanwhile, in winter and depending on the cooling technique, the generated heat may need to be upgraded via heat pumps.
In this context, thermal storage solutions (TES Tank) can play a key role in facilitating data center heat reuse, shifting thermal loads in time so that waste heat can be employed when it’s most needed.
Role of heat pumps
Heat pumps play a crucial role in enabling data center waste heat recovery by upgrading waste heat from cooling so that it becomes reusable. The use of efficient heat pumps with high COP values can greatly define a data center’s economic and technical viability for waste heat recovery. Heat pumps’ Seasonal Performance Factor must also be considered when assessing the feasibility of data center district heating integration in detail.
Distance to district heating networks
Proximity to existing district heating networks is another major factor to assess the technical viability of data center waste heat recovery. In short, the further the network, the longer the pipes, so that the higher the costs for heat recovery.
Reliability and Baseload Considerations
Because failure in IT cooling can have severe consequences for data centers, the capacity to ensure consistent operations while also implementing waste heat recovery becomes a central question.
Here, redundancy and the existence of predictable heat outputs and demand must be examined, with attention to design and equipment choices that ensure stability and continuous operation.
What does a mandatory feasibility study actually require?
The feasibility study needed to comply with the Energy Efficiency Directive requires technical expertise and the help of professionals capable of assessing each data center’s potential and capacities.
Drawing on ARANER’s expertise in thermal engineering for data center cooling and waste heat recovery with high efficiency large-scale heat pump solutions, here’s a look at the requirements for European compliant feasibility studies:
Technical heat mapping
A document that conveys how much heat is generated across the data center, helping identify the diverse cooling needs as well as the heat recovery potential.
Temperature profiling
Temperature profiles must be documented to determine their grade and requirements for reusing heat produced at the data center, including the incorporation of heat pumps to upgrade heat.
Proximity analysis to district heating networks
This step evaluates how close the data center is to existing or planned thermal infrastructure that could employ the reusable heat, and whether connecting to it would be viable from a technical and economical perspective.
Cost-benefit modelling
A model considering whether the financial and environmental benefits of reusing waste heat outweigh the costs of implementing waste heat recovery for the data center. Following the Energy Efficiency Directive, if the model is positive, the data center must proceed with heat recovery.
CAPEX and OPEX evaluation
A breakdown of the upfront capital (for instance, the acquisition of heat pumps) and ongoing costs (electricity costs, maintenance…) needed to implement waste heat recovery. The goal is to understand whether the benefits (in terms of heat sales, energy savings and so on) can cover these costs.
Utility interface assessment
This evaluates how well the data center and the local utility that would reuse the waste heat can interact and connect.
Can data centers sell waste heat to utilities in Europe?
In several European markets, data centers can sell waste heat, effectively transforming waste heat into a revenue-generating asset rather than a compliance cost.
To make this work, the relationship between the data center and utilities should be codified through a set of frameworks that specify the commercial and technical aspects of this exchange:
Heat Purchase Agreements (HPA)
HPAs are long-term contracts established between data centers and utilities in which the latter agree to buy the thermal energy generated and sold by a data center.
They typically include information about the volume of heat that will be provided, delivery temperatures and prices.
As part of deals, legal boundaries must also be established to:
- Mark infrastructure ownership and connection responsibilities for both data centers and contracting utilities.
- Address risk allocation and operational guarantees, considering the importance of stability for utilities and end-users, while also offering guarantees for data centers’ investments.
Revenue vs Cost offset models
Another important step in considering how waste heat recovery can be feasible for data centers in Europe is to consider the different ways data centers can monetize heat:
- In revenue models, utilities pay data centers for the heat, turning waste heat into a direct line of income.
- On the other hand, cost offset models look at how revenue and savings from waste heat reuse can reduce the costs of data centers. This includes looking at potential carbon credit value and incentives, but also at reduced cooling costs thanks to more efficient heat removal.
Market maturity of waste heat integration across Europe
From EU consumers’ perceptions around district heating to heat pump grants and funds, considering the European maturity for waste heat integration requires a close, multi-dimensional perspective.
Below is an overview of three key regions that are attracting data center investment and interest today:
Nordic countries
The Nordic region can be considered as a global leader for data center heat reuse.
With district heating programs that go back decades, the Nordics are in a privileged position to involve data center waste heat in circular heating models, with pioneering projects emerging in Finland, Sweden, Norway and Denmark.
The following aspects are central to understanding these countries’ position for data center waste heat recovery projects:
- The regulatory landscape in the region is directly influenced by the EU Energy Efficiency Directive (EED), with added requirements that stem from each country’s unique legislation. On the one hand, incentives such as significant tax breaks have fueled a surge in data centers in the region. A movement that has been further boosted by the appeal of these countries’ naturally cold climate for efficient cooling.
However, data centers’ environmental impact has moved from the background to a key role in shaping both regulation and public perception. For instance, Finland’s move in 2025 to remove preferential electricity tax rates for data centers changed investment outlooks. A movement that puts data centers with proven sustainability credentials at a privileged position in the region.
- Compared to other European territories, district heating penetration is outstanding in Nordic countries, providing a ready-to-use network for recovered heat from data centers. For instance, district heating in Sweden now supplies more than half of heating demand in buildings, particularly in urban areas. District heating in Denmark and heating in Finland present their own unique stories but have a common denominator: a combination of regulation and planning that has driven increasing adoption of district heating.
This, combined with infrastructure readiness and key market incentives, makes for a mature market that is already successfully incorporating data center heat reuse into the heating mix.
Germany
Germany stands out as Europe’s largest data center market, thus representing a major global player with its own unique characteristics:
- A regulatory landscape greatly shaped by the EU Energy Efficiency Act but complemented by Germany’s own Energy Efficiency Act (EnEfG). This has meant distinct requirements for data centers in the country. For instance, the EnEfG has established a timeline of reporting and environmental requirements for data centers, including the obligation for operators beyond a threshold to move towards renewable energies (100% by 2027), to reduce their PUE and to achieve specific levels of Energy Reuse Factor (ERF). For instance, the EnEfG establishes that eligible data centers in Germany should achieve an Energy Reuse Factor higher than 10% by July 2026 (with the percentage increasing in the following years).
- District heating penetration in Germany is high, especially in cities like Berlin (33% of residential buildings) and Hamburg (36.2%) and Munich (36.5%), according to data published by E.ON. Figures that are expected to rise following the approval of Germany’s Building Energy Act (GEG), paired with public incentives such as access to heat pump grants.
Emerging Southern Europe
Spain and Portugal are emerging as key hubs for data center activity, offering distinct opportunities while also adhering to European regulations pertinent to data centers, including the EU Energy Efficiency Directive.
With district heating penetration still being modest, there are nonetheless untapped opportunities in this region for data centers looking to improve their sustainability, such as the important penetration of renewable energies in the region.
The strategic position of the Iberian Peninsula (with the possibility of connecting to key submarine cable systems) has also been an important attractor for data center investment in recent times, positioning cities like Lisbon, Madrid and Barcelona as some of the fastest-growing digital ecosystems in Europe.
Compared to other European hubs, these emerging Southern Europe countries offer distinct opportunities, but also unique requirements to navigate, including:
- Specific legislation applicable to each territory, including Spain’s own Royal Decree, as well as navigating each autonomous region’s requirements.
- A critical requirement to address water use for cooling purposes and WUE in data centers, considering each location’s actual climatic conditions.
How to design cooling plants in data centers for heat reuse
A careful planning and integration of waste heat recovery into early-stage design are significant markers of success. In other words, to achieve success, heat recovery must be engineered from the design stage, not treated as a retrofit afterthought.
Drawing from ARANER’s expertise in thermal engineering, here is an outlook of the key aspects to consider when designing waste heat recovery as part of optimized data center cooling
- Thermal energy storage integration. Capable of storing excess heat to discharge during peak demand hours, TES technologies are key allies for navigating mismatches between data center waste heat and heating demand. These systems are also particularly important in the context of AI and HPC environments, absorbing potential thermal peaks and abrupt variations in order to ensure stability and reliability.
- High-temperature water loops.
- Hydraulic optimization.
- EPC turnkey delivery. An Engineering, Procurement and Construction approach can cover both data center and heat export infrastructure. This allows data centers to interact with a single technical counterpart, thus reducing risks and deviations in highly complex projects.
Conclusion: from energy consumer to thermal infrastructure asset
In Europe, waste heat recovery is moving from being a “sustainability add-on” and a good practice to becoming a structural design requirement.
From a strategic perspective, recovering heat from data centers has moved to become inevitable for the standard European data center. A move that presents challenges but also significant opportunities.
This is true not only because of the Energy Efficiency Directive, but also considering how AI-driven densities are expected to increase. In this context, the future of data centers in Europe positions sustainability factors like waste heat recovery as having a major impact on permitting and a significant influence on investment decisions.
With the right planning and engineering expertise, growing utility partnerships will allow a move towards circular models where wasted heat is turned into a valuable resource.
Throughout this transformation, ARANER supports data center developers with feasibility studies, heat pump integration, and district heating interface engineering. Capable of delivering end-to-end data center cooling solutions, we offer value engineering that adapts design to each client’s specific context.
Get in touch with us and speak to our team to discover more about how we can help you.
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