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Budget 2017: TechUK demands datacentre energy reform to stop post-Brexit market slump

TechUK airs fears over long-term growth and prosperity of UK datacentre market post-Brexit, without urgent government help on rising energy costs

The post-Brexit growth and performance of the UK datacentre sector is at high risk of being destabilised by rising power costs without urgent government intervention.

TechUK lobbyists fear the UK’s position as a major, global datacentre hub could be jeopardised post-Brexit unless the government grants the sector access to the same energy cost compensation measures as other power-hungry industries during next week’s Autumn Budget.

“If you don’t get things right now – in this budget – by the time next November comes around we’ll have had almost the whole gamut of the Brexit negotiations,” Giles Derrington, TechUK’s head of policy for European Exit, told Computer Weekly. “We could be in a position then where we have to potentially introduce emergency measures [to protect our economic interests], and come out of [this] not as strong than if we focus in right now.”

This latest plea is part of the ongoing dialogue between TechUK and government about what needs to be done to safeguard the future prosperity of the wider technology industry once the UK extricates itself from the European Union.

On the datacentre front, this work has already seen TechUK seek assurances from the government that the free flow of data between the UK and Europe will be preserved once the Brexit process concludes.

It is now TechUK’s fear the UK datacentre market may struggle to achieve the same growth and prosperity in the years to come unless the government acts on the energy cost issue as well.

“We already have a very successful datacentre industry here, but it is going to struggle in the context of Brexit, so [we have been asking] where can the government be putting some support, and energy costs is something we’ve talked about being a challenge for a very long time,” said Derrington.

The misclassification of datacentres

The reason why the UK datacentre sector does not receive the same energy cost compensation and concessions offered as other energy-intensive industries (EII) is down to the way it is classified by the Department for Business, Energy and Industrial Strategy (BEIS), said Emma Fryer, associate director for climate change programmes at TechUK.

When subjected to the cost for power calculations used by BEIS to define what classifies an organisation as operating in an EII, only a small proportion of UK datacentres met the criteria.

This is not because the datacentre sector consumes too little power, but because the calculations are based on assumptions made about the price operators pay for the energy they use, rather than real-world figures, she continued. “They set a price for energy that is way lower than what our [datacentre] users actually pay – around £60 MWh and only a few operators passed the criteria, which doesn’t give us a sector agreement or classification,” she said.

“The datacentre sector is more energy-intensive than quite a few of the sectors that qualify officially [as EII], and that is partly historical, because when that list was drawn up, datacentres weren’t the sector they are now and they weren’t really on people’s radar,” said Fryer.

As a result, the sector is not eligible to receive the same financial support and compensatory measures offered to EII organisations, which include members of the cement, chemical, glass and steel industries, to help them meet their energy costs.

“I would like to see the sector getting equitable treatment in terms of the compensation measures it’s eligible [compared to] other energy intensive businesses. We’re not questioning their eligibility, but that we should – perhaps – be treated in the same way,” she said.

“The traditional approach of government has been to ensure mature, and core manufacturing, have been protected and their focus has not really been on growth industries [like datacentres] because we’re supposed to be alright, but growth needs protecting too.”

Datacentre complacency

The government may interpret the commitments made by Amazon, Microsoft, and Google to build datacentres in the UK as a sign the sector’s future growth is assured, which would be a mistake, said Derrington.

“There is a tendency in government to see good business investment and see that as a sign that everything is okay,” he said.

“What we need to be focusing on is how to make sure we’re two steps ahead of the game and constantly offering the best landscape.”

Fryer backs this view, pointing to the number of European countries who are seizing on the uncertainty surrounding Brexit to talk up the benefits their territories could offer prospective datacentre investors.

“We’re seeing other countries bending over backwards to attract datacentres to their regions, and I think the UK government maybe missing a trick,” she said.

“Why aren’t we making a similar effort? We might be the dominant market in Europe and globally market leader in datacentres now, but we do need to protect that, as it will underpin our future growth,” she said.

Read more about Brexit and datacentres

If the UK is not careful or becomes too complacent, its strong standing within the global datacentre sector could be severely compromised in the years to come, said Fryer.

“One of my favourite analogies is to compare it to locomotive engineering in the 1930s, where the UK was a world leader and Doncaster was the global centre of excellence,” she said.

“Fifty years later, and we don’t even have a supply chain for any of that, and we don’t want the same to happen to datacentres.”

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