Combining Electrification and Datacenter Waste Heat for Affordable Heating in Finland
We Mean Business Coalition
Fortum is working with Microsoft to turn the AI boom into affordable clean heating for a quarter of a million residents in Finland’s second biggest city.
A partnership between energy company Fortum and tech giant Microsoft, Espoo Clean Heat will futureproof the communal district heating network of the Finnish city of Espoo and the nearby town of Kirkkonummi. Due to start operating in 2027, the project will provide affordable and reliable clean heating for homes and offices by deploying industrial-scale heat pumps and electric boilers, while harnessing the excess heat produced by two huge datacenters. Set to be the largest project of its kind in the world, it will also benefit the wider electricity grid by storing excess renewable energy and releasing it when needed.
A matter of life or death
In Finland, winters can be long and hard, while cool temperatures are not unusual during the short summers, meaning that reliable and efficient heating is essential all year round.
“Up here in the north, it gets really cold in the winter. We can have temperatures of – 26 °C for a week or two at a time,” explained Kristian Rehnström, director of corporate affairs at Fortum. “As a result, it’s essential that our heating works at all times. It really is key infrastructure. You can even say that it’s a matter of life or death.”
With the heating of buildings accounting for 27 percent of Finland’s energy demand, the country takes a communal and efficient approach to it through the widespread use of district heating systems, which are the most common form of heating across Nordic countries. Providing 45 percent of Finland’s heating, such systems connect multiple buildings to centralized heat sources via underground networks of pipes. In Espoo, the municipal district heating system was first installed in 1954. Today, out of a population of 325,000, a quarter of a million people use the 900-kilometer-long network to warm their homes and workplaces.
As was the case across the Nordics, Espoo’s district heating system was historically dependent on carbon-intensive fossil fuels. In the 1950s and 1960s, it was powered by oil. In 1977, its centralized heat sources were connected to a combined heat and power plant that ran on coal, while natural gas was introduced as an additional energy source in the 1980s. However, in recent years the city has taken significant steps towards decarbonization and in 2019 it set an extremely ambitious target of making its district heating network carbon neutral by 2030, five years ahead of the national goal of 2035 and twenty years ahead of the European Union more widely. Electrification of its heating and hot water lies at the heart of Espoo’s clean energy strategy.
How to generate affordable year-round heating from clean energy as the AI revolution speeds up?
Since 2014, Fortum has been working with the Espoo city authorities to run and electrify the municipal district heating system – gradually replacing coal, natural gas and oil heat sources with cleaner alternatives. A first heat pump utilising the excess heat from treated sewage water was installed in 2015, then wood pellet boilers a couple of years later. In 2020, a biomass plant was built, and a third heat pump was added to the system in 2021. In 2024, more heat pumps and electric boilers were added, powered by electricity from nuclear, hydro and wind sources. But the system still relied on fossil fuels, like natural gas, although coal was entirely phased out in 2024. Despite having connected it to a diverse mix of clean energy sources, Fortum needed yet another way of generating consistent, reliable and affordable low-carbon heat.
In the meantime, another revolution was underway. Like all Western economies, Finland has been undergoing a digital transformation that has consequences for its energy grid. While AI and other digital technologies are described as existing within ‘the cloud’, the reality is that they are located in datacenters that house vast numbers of servers, data storage systems, network devices and cooling systems. Since 2017, worldwide datacenter electricity consumption has grown by around 12 percent per year and is set to more than double by 2030, according to the International Energy Agency.
If unmanaged, this rapid growth could drive new fossil fuel generation and consumption, cause grid congestion and risk slowing the shift to clean electrified economies. However, Finland has positioned itself as a global leader in sustainable datacenters, thanks to a strategy that ensures their development helps provide affordable, year-round heating and hot water in urban areas. Espoo Clean Heat is a leading example of what this looks like in practice.
Combining electrification with recycled datacenter waste heat
In 2022, Espoo announced a partnership with Microsoft to build two giant, hyperscale datacenters: one within its boundaries and another in the nearby town of Kirkkonummi. The fuel mix of Finland’s electricity grid provides a crucial backdrop to this project. Heavy investment in nuclear, wind and hydro power has made it among the cleanest in the world, with 96 percent of electricity already powered by emission-free sources. As a result, the country consistently has among the cheapest electricity prices in Europe.
Moreover, this supply is also secure, as Finland is practically self-sufficient in terms of production, with domestic electricity covering 93 percent of demand. Add in the fact that its grid operates at an impressive 99.99 percent reliability rate, all this combines to make the country a highly attractive location for Big Tech companies looking to build resilient, financially viable and sustainable datacenters.
In fact, it is Finnish government strategy to align the AI and clean energy transitions. In 2025, it published a National Roadmap for Datacenters, proposing national objectives and measures for the development of these digital facilities, explicitly linking their location to electricity grid capacity and fossil‑free energy availability. As well as making use of Finland’s abundant, affordable and secure clean electricity, the project in Espoo will also be a flagship example of the national strategy’s second component. To complete the energy mix for the city’s district heating system, it will repurpose the waste heat produced by the datacenters.
Almost 97 percent of the electricity that datacenters consume is released as waste heat when it could be harnessed for heating. Moreover, they’re a particularly good match for energy provision in a cold country like Finland, as they run 24 hours a day, 365 days of the year. Such technology has already been pioneered by companies, including Fortum, in the Nordics, but in Espoo it is being taken to a whole new level. To transfer their excess heat to the district heating system, both datacenters will use innovative heat recovery technology on the largest scale in the world to date.
“There are so many datacenters worldwide, but the question is, what can we do with all the so-called waste heat that they produce? They all need to be cooled down by removing heat and, in most cases, that heat is just blown out into the air. But it’s not waste in our case. We utilize that heat,” said Thomas Ekholm, director of strategy and solutions for heating and cooling at Fortum.
Due to start operating in 2027, the project will work as an integrated system. Heat exchangers will transfer the datacenter heat from the air to water, before heat pumps and, in colder weather, electric boilers raise it to the right temperature for heating and hot water. Any excess energy will be transferred to thermal storage until it’s needed, and, fittingly, the whole system will be optimized by AI.
The district heating system will make the whole connection process much easier than if each property had its own heat source, like a gas boiler. It means that the heating for entire neighborhoods can be electrified and decarbonized in one go.
“When the system is ready in a couple of years, up to 40 percent of heating will come from waste heat from Microsoft’s datacenters,” said Rehnström. “The scale is different from any other system globally. It’s unprecedented.”
The system will also benefit the national electricity grid. For example, on windy days, when sources of wind power overproduce, it can use its heat pumps and electric boilers to absorb the excess power before storing it. This flexibility has further financial benefits, as Ekholm explained.
“When the electricity market fluctuates, as it has recently, this is when an electricity-based district heating network can create value. Because we combine electric energy production with thermal storage, it enables us to produce heat when electricity prices are fairly low and then store it until we see that electricity would be expensive to produce.”
Impacts: Affordable clean heat, sustainable AI, and local jobs
Espoo Clean Heat will keep heat affordable and benefit the national grid, by storing excess energy and using it when electricity prices are high. Once datacenter waste heat recycling is fully in use, it will cover 40 percent of the demand of the 250,000 district heating system users in the Espoo city area.
Meanwhile, Microsoft’s datacenter investments will create local jobs and new training opportunities. Plus, further jobs will be created indirectly.
The project will cut the carbon footprint of Espoo and its neighboring communities by 400,000 tons of carbon dioxide per year. This represents three percent of Finland’s overall targeted emissions reductions.
Datacenter growth can be managed through clean electricity grids and the reuse of waste heat
In the AI age, grid readiness is central to energy security and affordability. As electricity becomes cleaner and grids more flexible, the business case for aligning fast-growing datacenter demand with the energy transition is clear.
Moreover, the use of datacenter waste heat to complement the electrification of heating and hot water remains a largely untapped opportunity outside the Nordics. It is time to understand that there is no such thing as waste heat.
Ekholm summed it up succinctly: “It’s not waste heat if you have somewhere to put it, then it’s invaluable.”