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How Localisation and Sustainability are Shaping the French Data Centre Market

Thu 8 Jun 2023

France is one of the hottest data centre markets in the EU, with the French data centre market projected to reach an annual investment of US$9.7 billion in 2023, and growing to $11 billion by 2027.

The country is particularly attractive to foreign investors, claiming the top spot as the European country with the highest levels of foreign investment for the fourth year running.

Growth in data centre investment in France is driven by forces similar to those around the world: high demand for digital services, cloud adoption, and new technologies including big data, IoT, and AI.

France is particularly poised for growth, however, due to some specific conditions including:

  • Geographic location near European business centres
  • Excellent connectivity, including submarine cable connections
  • Cool, dry climate
  • Competitively priced electricity

Data centre construction could very well see an increase in the near future, as projects that were delayed due to the pandemic are put back into action. But companies investing in building new data centres or expanding existing facilities should be aware of the data localisation requirements and sustainability guidelines that affect data centre construction in the country.

Understanding Data Localisation in France

Like other nations in the EU, France is bound to data privacy regulations under the GDPR. But unlike some, the country has created its own framework to support and enforce provisions of the GDPR and enhance data security within French borders.

France has a history of focusing on data privacy and data security for its citizens. The French Data Protection Act was originally passed in 1978, and deeply changed in 2018 accounting for safeguards to personal data.

One of the primary tenets of the French Data Protection Act is that sensitive data must be stored within the physical borders of the country unless certain stringent conditions are met. This is intensifying the need for data centre facilities, as international businesses must comply with localisation requirements.

The positive impact of the data localisation requirement is that increasing demand should make it easier to find willing investors for data centre construction. However, these policies are not without critics, with some stating that they ‘undermine the distributed nature of the Internet and modern cloud services’ and ‘prevent French and EU-based companies from leveraging security expertise of US and other foreign cloud service providers’.

Tax Incentives: Fueling the Data Centre Industry in France

Recently, France reduced taxes on energy usage at data centres by 50%. This substantial decrease directly translates to lower operational costs for data centre owners and operators, making the industry more financially attractive.

The country also supports innovation in the sector with tax incentives for Research and Development activities of up to 30% reduced tax liability. And in an approach that is common in only few EU countries, France’s initiatives support small-to-medium businesses with larger tax incentives for R&D over those granted to large enterprises.

These incentives not only make France an economically attractive destination for data centre operations, but also foster a healthy competitive environment, encouraging continuous innovation and improvement in data centre technologies and practices.

Green Strategies: Sustainability and the French Data Centre Landscape

France’s approach to environmental strategies has been under scrutiny of late. Recently, when the EU released plans to promote green technologies with subsidies and financial incentives, President Macron said that subsidies should go to European countries only.

“We’re not being protectionist, but taxpayers neither in the US nor China fund batteries made in Europe. So why should we be the only place in the world where taxpayers’ money goes to helping non-European products? We’re going to stop doing that,” said Macron.

He also asked the EU regulators to stop issuing environmental regulations, stating that while he will stick to existing climate commitments, he advised that more should not be added. These comments invited criticism from Green Party politicians across France and other European countries.

France also recently adopted the Renewable Energy Acceleration Act aimed at reducing oil and gas dependency and increasing production of renewable energy. Yet, critics believe it could in fact slow down adoption of solar and wind across the country.

Large utility companies like ENGIE believe that the legislation supports breakthroughs, especially in offshore wind projects. Other companies like Neoen SA believe that working out the specific details, like defining ‘acceleration’ zones, will put projects on hold for years to come.

“We are already seeing a slowdown. We will have acceleration areas in 2027, and in the meantime everyone will put down their pencil. We are going to have four years of freeze,” said Xavier Barbaro, Neoen Chief Executive Officer, on BFM Business television.

While wind and solar production in France is lower compared to other EU nations, the country relies on nuclear power for 70% of its electricity. This is a low-carbon alternative to fossil fuels, but it can put users at the mercy of shutdowns for maintenance and repairs, which have led to concerns about potential energy shortages.

Opportunities for the data centre industry in France

According to McKinsey, data centres have attracted the interest of investors, often because of the steady, utility-like cash flows and risk-adjusted yields. Even as operating margins become tighter, the enduring high demand for data services will continue to support some degree of price elasticity, helping data centres remain profitable investments.

The economic impact of data centres can be quite significant. A recent report revealed that two hyperscale facilities in the Netherlands contributed €3.6 billion to the Dutch GDP over a five-year period. Such potential for substantial economic contribution adds another layer to the attractiveness of investing in the data centre industry.

Given the distinct regulations and incentives in place, France presents a fertile environment for data centre development.

The country’s data localisation stipulations, embedded within the French Data Protection Act, intensify the demand for local data centre facilities. This mandate, although it has its critics, effectively ensures a stable, increasing need for data centre investment, as international businesses must adhere to these requirements in order to operate within the French market. This, coupled with the French government’s substantial tax incentives, has created a favorable economic landscape for data centre construction and operation.

France’s commitment to sustainability and green strategies, despite recent controversies, prompts the need for data centres that align with environmental objectives. With the government’s Renewable Energy Acceleration Act and President Macron’s stance on green technology subsidies, the industry is urged to incorporate renewable energy sources and efficiency measures, setting the stage for the development of more sustainable data centres.

In addition to these specific regulatory and economic factors, France’s attractive geographic location, mild climate, and robust connectivity make it a strategic choice for data centre construction. As such, France remains a highly viable and compelling contender within the EU for data centre investment.

Therefore, the combination of localisation requirements, favorable tax incentives, an increasing emphasis on sustainability, and the potential for significant economic impact, positions France as a thriving hub for data centre construction and a promising destination for investors.

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