Data centre operators must weather the energy crunch

As we head into the traditional end-of-year season of high energy demand, power prices are continuing to spike, causing concern to consumers and businesses alike. Between August and mid-October 2021, more than 13 UK energy suppliers went out of business. They were casualties of an energy supply crisis that has seen prices rise massively. Wholesale gas prices, for example, have risen from 60p per therm at the beginning of the year to 400p per therm by the beginning of October.

There are a few reasons why this is affecting the UK particularly badly, but the crisis is a global one, driven largely by the huge spike in energy demand as the world recovers from the Covid-19 pandemic. Labour shortages, supply chain disruption and other factors are exacerbating the problem, which is affecting consumers and businesses alike.

Data centres are no exception. Amsterdam faces a threat to its position as one of Europe’s FLAP data hubs. The Dutch Data Centre Association has warned recently that smaller data centre operators are feeling the squeeze and in an unprecedented move, called for direct government support. In Ireland the Social Democrats have argued for a pause on new data centre construction until it can be determined whether the country’s power grid can cope.

Europe may lose out to the US

Increased operating costs and delays to new construction projects are likely to be the short-term consequences but these could have a knock-on effect over the medium-to-long term. Operators with thin margins may have to pass costs on to customers, which could mean that some switch to cheaper rivals. Delays in building projects will squeeze future capacity, with demand perhaps being picked up by other regions.

Even if construction projects go ahead, operators need to factor in increased costs and some might opt to build in the US instead, where the supply of shale gas promises energy costs that are $500,000 lower per year.

Emma Fryer, Associate Director of technology industry group TechUK and a well-respected opinion former in the tech space, told the energy magazine Zeitgeist recently, "Britain’s 500+ data centres are always looking at ways to mitigate electricity costs. The majority of our power bills are made up of non-commodity charges like tariffs and network charges – well over 50% - it’s a constant thorn in our sides".

Price isn’t everything, however. Location, latency and access to sustainable power still matter so there will still be demand for UK and European data centres, and at Kao Data we’re expanding to 3-sites to cater for a proportion of this, as a direct result of our new investment from Infratil Limited. Nevertheless, operators will have to plan carefully for power provision in the future. Locking-in supplies in advance will help to hedge against future price rises and those who aren’t sure of the right time to do that should seek advice from a broker.

Those operators that have not yet implemented measures to save energy, should need no further incentives to do so. That’s one of the fantastic things about working at Kao Data – we’ve designed and engineered one of the world’s most efficient data centres from the ground-up so while energy prices are rising we at least know what is within our direct control is covered, and is working hard to ensure our customer’s compute is lean, green and reliable.

Future spikes can’t be ruled out

Getting more power from renewable sources will become more important too, particularly if they are sources in the operator’s control, such as solar panels. Energy storage solutions might also offer some respite from high costs. Being able to charge batteries when energy prices are low and then switch to battery power at peak times may keep costs down. Some countries are even proposing that governments pay businesses not to use power at peak times – something that has happened in the UK.

Large-scale wholesale energy users from other industries are lobbying hard for government assistance, from price caps to temporary loans. Depending on the threshold that is set, data centre operators might be able to use some of these schemes as they appear.

Analysts suggest that prices will fall in Europe after the winter, when heating demands fall, but there is nothing to say that prices won’t rise again next winter. With increased investment going into renewable energy sources, many fossil fuel systems are getting less investment. This bridge period, as the world moves away from fossil fuels, could see further energy crunches. Data centre operators need to be prepared.

I’m pleased to say ‘being prepared’ is something the team here at Kao Data do on a daily basis.