The murky mechanics of data centers’ green electricity

Goo. Under German law, data centers have to procure at least half of their energy from renewable sources. From 2027 onward, it will have to be a full 100% (according to §11 (5)(2) of the current Energy Efficiency Act). However, there’s a subtlety to this provision: The electricity has to come from renewable sources “on balance” only.

To adhere to the law and claim usage of renewable electricity without actually using renewable electricity, companies can make use of so-called Guarantees of Origin, which translate to the, for once, perfect acronym of “GoO”. The system was defined in a European directive in 2009. Companies that produce electricity from renewables can sell GoOs to others. If they do so, their clients cannot claim to be using green electricity anymore and instead have to act as if their power came from fossil sources.

Carbon offsets. A friend who works as an energy trader described GoOs as “carbon offsets for companies”, and she did not mean that positively. Indeed, the system creates a complex virtual accounting for carbon emissions where facts plays a secondary role.

Fraud is not uncommon here. Icelandic utilities, for instance, produce electricity from hydro power and geothermal energy and used to sell GoOs to European companies – while Icelandic industries still claimed green credentials. The situation was so bad that the Association of Issuing Bodies, which oversees the system, banned Iceland from exporting GoOs between April and November 2023.

Assumptions. Perhaps more worryingly, the system was designed with the assumption that the demand for GoOs would lead electricity providers to invest more in renewables. This was not the case. The price of a GoO for one megawatt-hour (roughly equivalent to six months of electricity consumption for a one-person household in Germany) is currently one euro.

In his PhD dissertation published in 2022, Ákos Hamburger, who at that time worked for the Hungarian electricity regulator, found that GoOs had no impact on the development of renewables in the European Union.

Unease. Globally, the boom of data centers is responsible for the development of many new fossil-gas-powered power plants. AlgorithmWatch and Global Energy Monitor revealed that in Germany, every tenth new fossil gas project is linked to a data center. For example, the data center operators CyrusOne and GreenMountain are planning new projects with E.On (near Frankfurt) and Innio (near Mainz), respectively.

In their 2025 sustainability report, CyrusOne claims to have “already achieved 100% renewable electricity in Europe”. GreenMountain declares “100% renewable hydropower for all our data centers” on their website. I contacted both companies for details – neither answered. Given the system of GoO, data centers such as these can be labeled “green” while being powered by fossil fuel that is burnt nearby.

Solutions. GoOs failed in large part because they involve imaginary accounting. Instead, data center operators could buy their electricity directly from utilities that a) use renewable energy sources that feed into the German grid, b) are additionally built, and c) are accounted for on an quarterly basis – as argued by AlgorithmWatch’s Julian Bothe in a position paper published last month. This model, using power purchase agreements (PPAs) among other instruments, is already mature. CyrusOne, the data center operator, uses it extensively.

Germany’s Energy Efficiency Act is currently undergoing a legislative review. The government could simply change the relevant paragraph. Deleting the words “on balance” in §11 (5)(2) as mentioned above would put an end to greenwashing and ensure that data centers run on renewable energy that is available in reality – and not only on paper.

This is an excerpt from the Automated Society newsletter, a bi-weekly round up of news in automated decision-making in Europe. Subscribe here.