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Low-cost Nordics expect datacentre growth

The Nordics offers advantages as a datacentre location, with each of its five countries offering something different

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Outsourcing

The Nordic region is set to benefit from an estimated €3.3bn of datacentre investment by 2017, according to a report.

Apple, Microsoft and Facebook have been attracted by the abundance of cheap sustainable energy and government incentives that positions the region as a low-cost option for global enterprise.

But what is the draw of the Nordics’ five countries?

The Data Centre Nordics report from BroadGroup was based on a survey of 112 datacentre providers across Norway, Sweden, Finland, Denmark and Iceland. The findings suggest half of the predicted growth will be derived from overseas internet players. It said third-party datacentres will increase in size by almost two-and-a-half times and power requirements will triple from current levels.

The report was presented at the Datacloud Nordic conference in Oslo, where a largely Nordic audience discussed the relative pros and cons of the region. Intel’s datacentre systems manager Jeff Klaus was able to offer a truly international perspective on the region.

“The international perception of the Nordic region is that of a strong opportunity. Free air cooling, the ease of business operations because of the English-speaking culture and strong engineering platform in the school system are advantages,” said Klaus.

In addition to the natural benefits of air cooling for at least eight months of the year, companies based in the Nordic region are currently experiencing an increase in IT outsourcing and demand for enterprise cloud services.

A closer look at the region

The attractiveness of the Nordic region as a datacentre hub is due to an abundance of low-cost renewable energy, government incentives, a highly educated workforce and high standards of governance.

In Sweden, the arrival of Facebook in the north raised the country’s stature as a datacentre provider and kick-started many smaller projects around the region. Luleå, where Facebook built a datacentre, boasts the lowest power costs in the country, with good domestic and international connectivity.

Denmark has a high proportion of renewables and is well connected to continental European power sources to help combat the seasonal nature of wind power. Unlike the rest of the Nordic region, Denmark’s flat landscape means there is space available on which to build. The arrival of Apple to Viborg is predicted to lead to additional investment as Facebook did for Sweden.

Meanwhile, Norway has seen more domestic datacentre investment with high specification facilities in the western fjords. DNB, Norway’s biggest financial group, host all its mission-critical intelligence in the Green Mountain datacentre, built into a secret mountain hideaway once used by Nato during the Cold War, while Lefdal proposes a 120,000m2 facility.

Iceland’s massive hydro and geothermal energy generating capacity produces five times as much energy as the country needs. Electricity costs are therefore based on long-term deals rather than uncertain spot prices.

Finland offers fast connections between west and east, a reliable and stable energy grid that was ahead of the pack on energy tax cuts, and a government that has identified 5,000,000m2 of space ripe for datacentre development. The Finnish have so far attracted Microsoft, Yandex and Google.

Even lower costs on the way

The report finds that industrial energy in the Nordics costs as low as €0.03 per kW Hour (KwH), excluding taxes – around half the European average. The costs look set to reduce even further with a series of tax cuts across the region.

The Norwegian government recently announced plans to slash energy taxes for datacentres. As with any other service industry, Norwegian datacentres are currently subject to the standard electricity tax rate of 14.5 øre per KwH (about 1.4p). The government proposes a reduced rate of 0.48 øre per KwH for datacentres with more than 5MW power usage to bring the industry in line with other energy-intensive industries.

Since April 2014, large-scale datacentres have enjoyed lower energy tax rates in Finland, while the Swedish Ministry of Finance is considering a 97% tax cut for datacentres and data service providers.

A shift towards colocation and consolidation

Telcos dominate the datacentre landscape with business models largely focused on colocation, hosting and cloud services. Wholesale providers in the region remain rare.

As the energy tax cuts are mainly relevant for datacentres of a certain size – more than 5W power usage in the case of Norway – many expect consolidation to follow. Such consolidation will not only open up a lower cost base, but it can also help from a marketing perspective.

Intel’s Jeff Klaus believes consolidation in the region is inevitable. “There’s been good growth in cloud and colocation, but at some point everyone has to fill these facilities with profit. Building a large capital asset with no guarantee of revenue is a difficult business, so consolidation is a necessity for ensuring financial strength and ensuring the remaining players have the investment capability to compete worldwide.”

“Intel obsoletes itself every two-and-a-half years with new architecture in the server environment. If you’re not financially capable of reinvesting in that equipment, then you’re going to be at a disadvantage,” he added.

Challenges ahead for the Nordic region

The cost of domestic fibre-optic connectivity varies significantly across the region, as does the access to international fibre-optic connectivity. According to the BroadGroup report, Norwegian datacentre providers report that a lack of low-cost, long-distance connectivity means Norwegian fibre pricing remains higher than in other countries.

Given the easy supply of cheap, renewable energy and tax incentives from governments across the region, over-supply could drive prices down.

“Lessons on the warning signs of over-supply can be learned from the UK,” said Steve Wallage, managing director at BroadGroup Consulting.

“A high number of companies competing for business led to very aggressive pricing in the market to attract anchor tenants, and by those companies who prioritised valued customer volume to attract additional funding.”

Wallage also emphasised the need to create a solid regional identity to attract large global customers.

”The Nordics are known for local-cost green energy and a low total cost of ownership. Yet the region still lags behind the likes of Ireland, Frankfurt and Amsterdam when it comes to an international reputation for specific factors,” he said.

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