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Blackout after Brexit: UK datacentres brace for post-EU power supply and cost changes

As the uncertainty over how the UK intends to extricate itself from the European Union rumbles on, datacentre operators are weighing up how Brexit might affect the availability and cost of the power they need to run their facilities in future

In the wake of the UK’s vote to leave the European Union in June 2016, there was a lot of speculation about the impact the move could have on London’s booming colocation market.

A lot of this stemmed from all the various uncertainties thrown up by the decision, with particular emphasis on what being separated from the EU would mean for cross-continent data transfers.

At the time, there were anecdotal reports that these concerns had knocked the confidence of overseas investors, resulting in some planned UK datacentre builds being scrapped or put on hold.

However, with the London colocation market emerging as the top performing colocation hub in Europe during 2018, with 77MW of take-up recorded, it seems fears the market could encounter a Brexit-induced downturn in performance may have been premature. 

“We’re not seeing any impact at the moment… and I don’t think it will change a lot. There is an argument that as enterprises try to save money, they outsource more to the cloud, for example,” CBRE executive director Andrew Jay tells Computer Weekly.

“It’s swings and roundabouts. Where one company says it can’t be in the UK because we’re not in the European Union any more and moves [its requirements] over to Frankfurt, there will be a company in Frankfurt that comes over here and says it wants to provide services to the UK, and it needs to be in the UK to do that.”

Brexit uncertainty continues

At the time of writing, it remains unclear on what terms the UK will exit the EU, or when – given the original withdrawal date of 29 March 2019 has been and gone, and still the UK remains part of the European Union.

In response to all of all this uncertainty, the European datacentre user community has started taking decisive action of its own to ensure that however the Brexit deal negotiations shake out, they are prepared and their clients’ data is suitably protected.

As proof of this, Jack Bedell-Pearce, managing director of colocation service provider 4D Data Centres, says one only has to look at the heightened awareness enterprises seem to have about how important it is to keep tabs on where their data is located.

“One of the trends we’ve been seeing in the datacentre market over the last 6 months to a year is companies becoming mindful of the fact they might not be 100% sure where their data is physically, particularly if they are using a hyperscale cloud service,” he tells Computer Weekly. “And – in response – they are physically transferring that data back from European datacentres to the UK – and vice versa.

“It’s not quite a zero sum game, because it looks as though more data is being brought into the UK [than being taken out] – and that could be because they are duplicating data, but that is certainly a trend we are seeing as a result of all the recent politics going on,” he adds.

And it is also not a trend that should be exclusively attributed to Brexit as a cause of, as successive changes to the data protection landscape in recent years, including the introduction of the General Data Protection Regulation (GDPR), have served to sharpen the minds of IT decision makers on data sovereignty issues.

“It’s a trend that has been gathering momentum for a while, and it’s no bad thing,” says Bedell-Pearce. “Even if we end up with a good negotiated agreement on the terms of the free transfer of data between the UK and Europe, companies need to become more aware of where their data is physically being stored.”

The risk of Brexit-induced blackouts

But while Brexit may be shaping up to be something of a boon for the colocation community in this regard, concerns have been expressed by operators about what how exiting the EU could impact on UK power supplies, given how much energy we currently import from the continent.

Particularly as the market seeks to meet the (seemingly) insatiable demand from the hyperscale internet and cloud services providers for ever-growing amounts of space and power within the UK, coupled with the aforementioned uptick in demand from enterprises for locally-hosted data because of Brexit.

And while talk of power supply issues could be considered alarmist or even scare-mongering, there are real examples of colocation hubs within Europe that are grappling with this issue at the moment, including Dublin and Amsterdam.

In the case of the latter, the Dutch Data Center Association issued guidance in May 2018, warning that “acute” power supply problems in Amsterdam could potentially make it harder for the datacentre market there to expand further. So much so, the government issued a statement confirming no new datacentres could be built in Schiphol, in the south of the city.

According to CBRE’s Jay, it is not necessarily the case that power is in short supply in these countries, but getting it to where the datacentres are is where the challenge often lies.

“[There] isn’t a big problem in the UK from a generation perspective – and there aren’t many countries where that is a big issue,” he says.

“It is more of a distribution and timing [problem]. People are building new power-generating capacity, but they can’t just spin it up in 12 months. It’s a multi-year project.”

Read more about Brexit’s impact on the IT market

In the UK market, there is a worry it could soon be at risk of power outages and shortages of its own in the not too distant future, if the UK government delivers on its pledge to close all of the country’s coal-fired power stations by 2025.

At the same time, there are efforts afoot to decommission many of the UK’s ageing nuclear power plants, prompting the Institution of Mechanical Engineers to issue a report in 2016 about the risk of an electricity supply gap occurring in the UK.

This is on the basis that, in the Institution’s opinion, the UK lacks the time, resources and skills needed to spin-up replacement power plants in sufficient numbers to fill the gap.

This means the UK may have to ramp up the amount of power it imports from mainland Europe, which it currently does so through its participation in the EU, or – more specifically – the European Internal Energy Market (IEM).

The report – which, incidentally, dropped several months before the EU Referendum vote took place in June 2016 – goes on to say that increasing the amount of power the UK imports may not only result in higher energy costs overall, but also poses its own risks from an energy security perspective. And now, against the backdrop of Brexit, the stakes are even higher, warns Bedell-Pearce.

“If we end up with a no deal Brexit, and the value of the pound goes down, it is going to make it more expensive to import power, and if Europe is less friendly towards us, they might not be so willing to send us their surplus power anyway.”

Like most things to do with Brexit, it remains unclear at present if the UK will continue to participate in the IEM once it extricates itself from the EU, but Computer Weekly understands the government is preparing legislation to ensure the UK can embark on similar trade agreements as before, although the terms are likely to change.

Remaining all the way

A report by the European Union Committee, released in January 2018, suggests there is strong support in the UK energy sector to remain part of the IEM once Brexit concludes. However, that might not be logistically possible if the government pursues a deal that removes the UK from the EU Single Market overall.

“The UK will need to continue to trade energy with the EU in order to meet demand, but if such trade takes place outside of the IEM it is likely to be less efficient, potentially raising costs for consumers,” the report reads.

The ability of the UK to engage in the tariff-free energy trade with other EU member states deals the IEM permits hinges on some important pieces of infrastructure known as interconnectors, which effectively link the UK’s electricity transmission systems to those of its European neighbours. These include France, the Netherlands, Ireland and Belgium.

Exiting the IEM may result in the UK losing out on infrastructure investments, the report goes on to warn, that have previously helped to safeguard the security of the UK’s energy supplies and enable further interconnectors to be built.

“It will be particularly important to replace the EU’s funding of interconnectors, in order to ensure there is sufficient infrastructure to enable future energy trading,” the EU Committee report warns.

Price hikes

Given how big a line item energy costs are for datacentre operators, any risk of price hikes are always treated with trepidation, and any threat to energy supplies has the potential to cause massive disruption to an industry where uptime and resiliency are valued higher than anything else. With this in mind, it is not difficult to see why the post-Brexit energy landscape is such a hot topic for the datacentre sector.

In a reactive statement to Computer Weekly, a spokesperson from the UK Government’s Department for Business, Energy and Industrial Strategy (BEIS) played down the risk exiting the EU – even on a no deal basis – will have on the security of energy supplies.

“There will be no issues with security of energy supply. The UK benefits from an energy system that is resilient, secure and drawn from a number of sources. Leaving the EU will not change this,” a BEIS spokesperson wrote.

And the datacentre community should have no cause to doubt BEIS on this, says Emma Fryer, an associate director at technology trade body TechUK, where she oversees the management of the UK Council of Data Centre Operators.

As such, she has spent a lot of time since the result of the EU referendum vote in June 2016 seeking assurances from various government departments on behalf of her stakeholders that Brexit will result in any disruption to energy supplies in the UK.

“I have directed a number of questions to government departments regarding the specific implications of Brexit in different policy areas over the last two years. Those on energy security of supply post-Brexit were answered with a much higher level of assurance than any other topic,” she tells Computer Weekly.

“I don’t think this is wishful thinking or an attempt to boost confidence. The evidence is there – they appear to have prepared thoroughly for every scenario: Brexit No Deal, a Brexit Deal, no Brexit, and everything in between.”

Power costs

Where there is less certainty is about how Brexit will affect power costs, which Fryer admits are liable to rise because of currency fluctuations and the inevitable change in energy trading agreements leaving the EU is likely to necessitate.

The government could choose to offset any price rises by cutting some of the taxes and levies that make up the non-commodity costs portion of people’s energy bills, and – in turn – give the datacentre sector a competitive boost, says Fryer. “These are where the real pain is for operators.”

Across Europe there is little variation in how much operators pay for just the energy portion of their bills (known as commodity charges), she continues, but it is when the non-commodity costs get factored in where things start getting problematic.

“Unlike most energy intensive sectors, datacentres currently cannot claim compensation for [non-commodity [costs],” she adds.

Non-commodity costs

However, Bedell-Pearce is hopeful there could be some leeway on this after Brexit. “Around about 50% of the cost of power all companies pay in the UK is made up of non-commodity costs. [Which are] either taxes or some other kind of regulatory requirement set by either the European Union or the UK government,” he says.

“Half of what we pay now could be flexible in terms of competitiveness, but we can’t flex that too much at the moment because of anti-competitive rules within the European Union.

“Outside of Europe, we’ve got this opportunity to reduce the cost burden of electricity, which is a huge cost component of running datacentres, which could potentially give us a competitive edge,” he suggest.

In Fryer’s opinion, that could theoretically happen, but there is nothing to suggest at this point that fiddling with non-commodity costs is on anyone’s agenda at all.

“In theory, government has a perfect opportunity to remove or mitigate unilateral non-commodity charges on electricity to redress this imbalance and help energy intensive sectors like ours remain competitive, so far we’ve seen absolutely no indication that any levies or taxes will be dropped or reduced,” she says.

So, while the UK datacentre community can take some comfort from the sureties offered by the government about the work it is doing to avoid Brexit-induced blackouts, the uncertainty over how much it will be paying for power in the years ahead looks set to continue.

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