Estonia's image as a digital state has been fading in recent years and the economy needs a new engine of growth to break out of stagnation. One promising option is to plot a strategic course toward attracting data centers as a new industrial sector. In their wake, conditions would also emerge for growth in several other fields.

Our northern neighbors [Finland] have already made this choice and are taking action. If Estonia waits idly by at the same time, we will ultimately be left only with the spillover effects of our neighbors' success — namely, rising regional energy demand and higher electricity prices.

News capital-intensive industry

The volume of data in the world is growing exponentially. Artificial intelligence, cloud services, big data analytics and digitalization all require ever more computing power. This is a new, capital-intensive industry that brings investment, creates jobs and extends the value chain beyond the technology sector. As a result, countries are competing more and more actively to attract the next major data center developments.

Our neighboring countries have made the development of data center infrastructure a strategic priority. In Finland, for example, data centers are seen as one of the few sectors capable of driving economic growth and significantly increasing electricity consumption in the coming years, as the country's energy use has remained relatively stable for a long time.

Unfortunately, a country's energy consumption and economic growth are correlated: the wealthier the country, the higher its energy use. In addition to Finland, both Sweden and Poland are actively moving forward, accelerating planning and permitting processes as well as the construction of grid connections to attract data center investments.

At the scale of Estonia's economy, the impact of such investments would be even greater. Data centers represent projects worth billions of euros, which would account for a significant share of Estonia's gross domestic product.

Even a single such investment could give a noticeable boost to economic growth — from construction and the technology sector to services and tax revenues, ultimately feeding into wages and people's standard of living. These are precisely the kinds of growth impulses Estonia's economy needs to break out of the vicious cycle of recent years, in which economic growth has remained near the bottom compared with other European countries.

Unlike many traditional industries that require a very large workforce, data centers do not, making them particularly well suited to Estonia's economic model and demographics.

Easier to sail in a big ship's wake

One structural problem of Estonia's energy market is its small size. A small market means more volatile electricity prices and a more challenging investment environment. Many new energy projects, especially in renewable energy, require long-term power purchase agreements to mitigate risk and these can only be concluded when there are large, stable electricity consumers in the market.

From this perspective, data centers are ideal consumers. Their stable, round-the-clock consumption profile is well suited to long-term power purchase agreements — for example, contracts lasting 10 to 15 years with renewable energy producers. A reliable, long-term buyer makes financing new energy projects significantly more attractive for financial institutions.

In Estonia's context, one or several large and stable electricity consumers would increase the overall scale of the energy market. This, in turn, would reduce price volatility, improve the efficiency of grid utilization and create better electricity contract conditions for other companies as well.

Stable consumption helps balance an energy system in which the share of renewable energy is growing. Data centers not only increase demand but also provide important flexibility to the system, which can reduce upward pressure on electricity prices during peak load periods. They also support the integration of renewable energy through increased electricity consumption. At the same time, the significant rise in demand requires ensuring that potential risks to market functioning and security of supply are properly mitigated.

Data centers encompass a broader value chain, from hardware installation and maintenance to cooling and security systems and network infrastructure management. Building a data center creates jobs in construction, technical maintenance and services, enables the use of waste heat in local district heating networks and strengthens regional business activity. In the longer term, this means highly skilled specialists, reduced brain drain and the development of the local technology sector.

Even if that point is reached, however, the presence of data centers does not automatically generate research, product development or innovation. Nor does it immediately lead to greater adoption of digital or artificial intelligence-based solutions in Estonia. To create this added value, investment is needed in workforce skills, the education system and research and development.

Data location a matter of security

There is growing discussion about the need to keep data critical to the state physically within national borders, and for this reason data centers are increasingly becoming a security issue. If data is stored abroad or in global cloud solutions, access problems may arise in times of crisis. Domestic data infrastructure is a strategic reserve of the digital age — like a pantry or cellar that must be in place even in more difficult times.

Data centers do not emerge here on their own, however, and many countries are actively moving in this direction. If Estonia wants to have a say in this race, it must make a deliberate choice. If this opportunity is missed, investments, expertise, and value chains will shift to other countries. Estonia would then be left only with high electricity prices and intensifying regional competition.

--

Follow ERR News on Facebook and X and never miss an update!