Co-location services and datacentres feel the CCA heat

A climate change agreement (CCA) for datacentres has come into force. How will its energy-efficiency rewards shape the industry?

It’s been little over three weeks since the climate change agreement (CCA) for datacentres came into force and the impact has already been felt in some quarters of the IT industry and beyond. 

In his Autumn Statement last year, chancellor of the exchequer George Osborne announced that datacentre operators would be exempt from blanket carbon taxes. Instead they were allowed to reach a separate climate change agreement in line with other energy-intensive industries such as manufacturing. 

On 1 July, UK co-location operators received government recognition as the CCA for datacentres came into force, with the aim, say the experts, of helping the co-location industry to become more energy-efficient and competitive.

Arguably, one of the most stimulating sections of the CCA legislation is the promise of a tax break for companies that hit their carbon reduction targets. 

According to Emma Fryer, associate director of the climate change programme for TechUK, one of the many positives of the changes has been that the function and usefulness of a datacentre are now more widely understood. Any issue expressed in the language of money tends to be more widely appreciated at board level, she says.

“People are looking at carbon in a different way now,” says Fryer. It is too early to say whether the tax rebates will have a stimulating effect on investment in datacentres and hosting, but the CCA has let everyone know where they stand, she adds.

This means that all the variables likely to affect investment in any sort of datacentre service – such as the future costs of carbon compliance – are now predictable. Investors (and indeed the markets) like long-term projections with no chance of any surprises. “Everyone knows where they will be in 10 years’ time, and the signals of stability are massively important,” says Fryer.

As the architect behind CCA, Fryer would be expected to say that. But does the rest of the datacentre co-location sector agree?

UK energy policy crippling datacentre growth

Power costs and energy efficiency have been a top priority for datacentre managers and co-location service providers.

The price of power can significantly alter the overall lifetime cost of a datacentre. Assuming a 15-year lifespan for a datacentre, a price of $0.067/kWh (£0.045/kWh) contributes about 30% of a facility’s operating expense and usually accounts for 10–15% of the total cost of building and running it.

We now have wholesale operators actively chasing retail co-location deals for as little as a single rack

Tim Anker

Internationally, CCAs are negotiated arrangements between governments and industries judged to be least environmentally friendly. Those judgments are made in terms of the carbon dioxide they emit through their processes, the amount of electricity they consume and the sources of that electricity.

The interpretation by the UK regulators of what constitutes sustainably sourced electricity is a moot point. One power purchaser for datacentres expressed surprise that electricity generated by nuclear power is classified as ‘green’.

Given that CCAs could affect 50 industrial sectors, there are misgivings in the datacentre industry over how datacentres have been targeted over carbon taxes and the Carbon Reduction Commitment. One spokesman for The Green Grid has expressed dismay that the UK datacentre industry seems to have been unfairly targeted over its carbon footprint, while other sectors have been overlooked.

However, there is evidence that any taxes imposed on UK datacentres have not held the sector back. According to market analyst Cushman & Wakefield, which publishes an annual datacentre risk map, Britain was ranked second-best country for datacentres in 2013.

And for the second year running, the UK was ranked highest-placed European country for building the IT facility because of its high scores relating to international internet bandwidth for datacentre resilience and ease of doing business.

This ranking was also calculated on a number of other variables, such as the availability of a skilled workforce, the risk of natural disaster and political stability.

The three most important variables are international bandwidth, energy costs and ease of doing business. The latter two are directly affected by any taxes on datacentre power consumption. 

Though Britain does not fare well in terms of competitive pricing for energy (it is ranked number 21, according to Eurostat), the World Bank places it fifth in the world for ease of doing business. And top-four-placed Norway is not renowned for its low-tax regime.

Taxes and energy prices do not seem to have held back the growth and expansion of the datacentre industry in Britain. The UK is estimated to have around 60% of all the datacentres in Europe, according to the OECD, which puts the number of datacentre sites in the country at between 250 and 300. 

In the co-location sector alone, there are 217 facilities across 56 areas in the UK with as many as 67 of these in London. The UK had up to 7.6 million square metres of datacentre space in 2011, according to DCD Intelligence research.

One of the fastest growing segments of the co-location sector could be facilities that cater for small to medium-sized enterprises, according to datacentre consultancy firm, Colocation Exchange (Colo-X).

“We now have wholesale operators actively chasing retail co-location deals for as little as a single rack,” says Colo-X managing director Tim Anker. Smaller companies will tend to want to deal with hosting companies of their own size and in their own locality, he says, which has led to the rise in SME-sized hosting companies.

Could tax breaks stimulate the sector?

It is by no means certain that the CCA-inspired tax breaks will give the co-location sector a shot in the arm, or that the tax savings will be passed on to the customer and simulate more demand through lower prices. 

Victor Smith, vice chair of TechUK, and director of product development at Colt Data Centres, says: “I’m not sure it has clarified the issues yet. With government initiatives, people tend to stand back and wait to see what happens before they act.” 

Though the tax incentive may free up money that might otherwise have gone into tax, there is no guarantee it will have an immediate stimulus. “In the first year or two, companies will have to invest more than they anticipate saving,” says Smith.

All that providing tax breaks to the colo market will do is give them bigger profits – and lower the tax take

Clive Longbottom

Analyst Clive Longbottom, senior researcher with Quocirca, doubts whether tax breaks will boost the co-location industry immediately. “I don’t believe taxes held colo back,” says Longbottom. “All I think that providing tax breaks to the colo market will do is give them bigger profits – and lower the tax take.”

There is mutual agreement among datacentre operators, such as Colt and Telecity, that the CCA will make enterprise customers more conscientious. Rob Coupland, managing director at Telecity Group, says it “could drive the right behaviour,” as does Colt’s Smith, a fellow member of TechUK.

Those outside the TechUK Council aren’t toeing the same line. Steve Webb, chief operating officer of Ark Data Centres, doesn’t sing from the same song sheet. “With the exception of one or two of our big government clients, we note there is very little regard or demand for carbon savings,” he says.

When Ark sells to its customers on the strength of power efficiency and a low carbon tonnage, few get excited, says Webb. “People don’t really switch onto it because it doesn’t really mean that much to them.

“I thought when the CCA came into play it would really help us accelerate our business but it hasn’t yet, because I don’t think the penalties bite hard enough around CO2 emissions.” 

The greatest achievement of TechUK’s work on the CCA has arguably been the repositioning of the datacentre industry with the people who pull the levers of power in Britain.

“The carbon reduction commitment worked well if you had a static amount of consumption, but as a policy vehicle it is completely wrong for a growth industry,” says Telecity’s Coupland. CCA changed that, he says.

According to an industry census by DCD Intelligence, the amount of power used by datacentres grew by 7% in 2013. Restructuring the way carbon reduction is calculated has done the datacentre industry a massive service, he says.

Ian Bitterlin, The Green Grid’s technical work group chair, thinks the datacentre industry is still misunderstood and singled out for attention while other sectors escape. “In the UK only 9% of the national grid is consumed by IT, of which a third is taken by datacentres.

“Governments make a big issue about the datacentre having to be powered by renewables. But why only our industry and not the others? If we use renewable power, that only means it’s not available to someone else to use.”

We need a whole soup-to-nuts way of measuring efficiency

Ian Bitterlin

There are plenty of fronts on which to fight the continuing struggle against carbon consumption, datacentre operators say.

“Many of the measures outlined in the legislation – such as free air-cooling, low load strategies and wider thermal operating conditions – are already implemented in our datacentres,” says Fergal Creed, Digital Realty’s vice president for EMEA.

Again there is a problem of perception to be overcome here before progress is made. The tolerance of servers towards temperature variations is not understood by risk-averse clients, reports Colt’s Smith. “Sometimes we get clients who demand a level of temperature control that would need so much energy to adhere to that it would send their PUE into the stratosphere.”

Airflow management, free cooling and temperature tolerance all have their place, but the next battle is over how their effectiveness can be measured. Power usage effectiveness (PUE) should be only one metric in a raft of different measures promised in the new ISO standard (30143). “We need a whole soup-to-nuts way of measuring efficiency,” says Bitterlin.

While CCA for datacentres is a good start, says Ark’s Webb, there’s still a long way to go. 

Nick Booth is a freelance technology writer

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