Germany's Schwarz Group to invest €5.6bn in data centre near Rostock

Germany's Schwarz Group, owner of the Lidl and Kaufland supermarket chains, will invest €5.6 billion ($6.5 billion) in the construction of a data centre near the north-eastern city of Rostock, the company announced on Thursday.

The data centre in the small town of Dummerstorf is planned to have a capacity of 240 megawatts by 2033, according to the company.

"Digital sovereignty does not arise through appeals or speeches. It arises through action, reliable infrastructure and practical applications," Schwarz Group chief executive Gerd Chrzanowski said.

Schwarz is already building a similarly sized data centre in the state of Brandenburg outside Berlin, where investment costs are expected to total €11 billion.

Group's financial background 

The Schwarz Group, which employs more than 600,000 people worldwide, is best known for its retail chains but has for several years also operated as an IT services provider through its Schwarz Digits division, offering services such as cloud computing and cybersecurity.

In its financial year that ended in late February, Schwarz Digits posted revenue of €2.2 billion, representing year-on-year growth of 16%, driven largely by rising demand for cloud solutions. 

Schwarz Digits is one of five divisions within the group, which most recently reported total revenue of €185.6 billion, with Lidl and Kaufland still accounting for the largest share. 

Both the Schwarz Group and its Digits division are based near the city of Heilbronn in the south-western German state of Baden-Württemberg.

Push for digital independence

Digital sovereignty refers to the ability of companies and states to determine where their data is stored and who can access it, independently of US or Chinese technology companies. 

Schwarz aims to position itself as a European alternative to providers such as Amazon Web Services (AWS) and Microsoft Azure, with ambitions to become a "hyperscaler," a term for cloud providers that operate large numbers of servers worldwide to offer customers storage, computing power, artificial intelligence (AI) and other tools at scale.

Data centres are essential to this model. A data centre houses large servers and computers used to store, process and distribute data. They are important not only for large companies storing corporate data, but also for ordinary members of the public: Every time someone watches a video on their phone or sends an email, the data passes through such a facility.

In Dummerstorf, capacity would initially be used for the Schwarz Group's own needs, including data from delivery and ordering processes, payment transactions and customer loyalty programmes. 

At the same time, "the data centre would strengthen the further development and scaling of sovereign IT solutions," the company said in a press release. By 2045, the centre could be expanded to a connected load of 1 gigawatt, it added.

Green energy to power centre

Although data centres are important for the digitization of the economy, their construction is not without controversy. In the US, they have sparked fierce local disputes in some states - over noise and the large electricity and water consumption of AI facilities.

The extensive wind power infrastructure along the Baltic coast is an advantage for the project. Schwarz cited "the high availability of sustainably produced electricity, including from onshore and offshore wind power" as a factor in its choice of location.

The state of Mecklenburg-Vorpommern, where Rostock is located, already covers more than half of its electricity consumption from wind energy and, in purely arithmetical terms, produces significantly more wind power than it consumes. Most of that electricity is currently transported south via high-voltage power lines. 

Dummerstorf's connection to the extra-high-voltage grid means power can be delivered to the facility relatively efficiently. Schwarz also said the local climate was favourable for effective cooling - essential for protecting expensive servers from overheating.

State promotes other benefits for residents

The facility near Rostock is also intended to supply waste heat to the city of Rostock for district heating. A letter of intent to that effect has been signed with the municipal utility. 

A similar agreement on waste heat use is already in place in the town of Lübbenau in the state of Brandenburg to the south-east of Berlin.

How much the state government stands to gain politically from the announcement of the multibillion-euro investment remains to be seen. Wind power remains controversial among many residents. 

Mecklenburg-Vorpommern Premier Manuela Schwesig has repeatedly highlighted the benefits of cheap green energy ahead of the upcoming state election, saying it can be produced in the state for 5 cents per kilowatt-hour at several campaign events.

At the same time, she has called on energy producers to pass lower prices on to businesses and consumers in the state, and said municipalities and residents in areas hosting large wind turbines should share in the profits to boost public acceptance.

The new data centre may well be seen as evidence that wind power is helping to attract new industries to the region. Thousands of jobs will be created during construction, and the company said 120 highly skilled positions would be created once the centre is operational, with many more regional businesses set to benefit from maintenance, upkeep and service contracts.

But practical benefits are up against widespread scepticism. Many people are wary of AI and fear that digitization threatens their jobs.