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The government’s imminent plan to stop datacentre operators benefiting from energy-related tax breaks on new builds could harm the sector’s future growth and competitiveness, fears TechUK.
The tech trade body is urging the Department for Business, Energy and Industrial Strategy (BEIS) to reconsider its ban on new sites and market entrants joining its datacentre-focused Climate Change Agreement (CCA) from 31 October 2018, given the 10-year scheme does not close until 2023.
Otherwise operators will be unable to benefit from energy tax breaks, in exchange for cutting their electricity use and carbon emissions, in any new datacentres they build for the next five years, which could put them at a significant competitive disadvantage, according to TechUK.
“The scheme closes in 2023, and everyone knows that, because you don’t run these schemes forever,” said Emma Fryer, associate director of climate change programmes at TechUK.
“But closing this scheme to new entrants so early will pose problems for our industry.”
New operators could end up being charged more in energy costs, once the deadline passes, than their competitors who are already involved.
“In a highly commoditised market where energy is the highest operating cost this will place new entrants at a disadvantage compared to incumbents and discourage growth,” warned TechUK in an advisory note produced by the members of its UK Council of Data Centre Operators.
Closing off the CCA
The datacentre CCA began in July 2014 as means of encouraging the datacentre industry to cut its energy use and carbon emissions in exchange for a reduction in the energy taxes they have to pay as part of the Climate Change Levy (CCL).
According to TechUK’s own figures, there are 130 sites participating in the CCA who collectively save around £21m a year in electricity costs, which is money they can reinvest in upgrading and expanding their facilities, or pass those savings on to their customers by lowering their prices.
The decision to close off the scheme to new sites is likely to unnecessarily complicate matters for existing participants, because some sites in their portfolios will be eligible for tax breaks while any that are brought online after the October deadline will not, said Fryer.
“How do you bill your customers in that scenario? Do you bill them on an average between the two? Or do you bill the customers in the older site, covered by the CCA, less or the ones in the new site more to cover their higher running costs?” she said.
“There is also a sense new sites, which should generally be better performing [from an energy efficiency perspective] are going to be penalised compared to the old sites, so operators are almost discouraged from closing down older sites in preference to new sites.”
Anything that stands to prioritise extending the life of old sites over building new ones risks sending the wrong kind of message to the investor community, at a time when they may already be feeling spooked about the impact Brexit may have on the sector at large, said Fryer.
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For this reason, she said TechUK is in the throes of lobbying the powers that be at BEIS to consider extending the 31 October 2018 deadline for new entrants, so the sector can continue to reap the benefits of the scheme.
“[The deadline] is not written into primary legislation; it’s written into the sector agreement and wouldn’t be difficult to change, and BEIS is there to help businesses, so I feel they should have a closer look at it,” she said.
When Computer Weekly put this request to BEIS, a spokesperson said the deadline is being imposed for a reason and will be adhered to.
“The rules for the Climate Change Agreements scheme have been in place since 2013 and clearly state that no new facilities may enter the scheme after October 2018 to make sure the scheme remains stable in its last five years,” the spokesperson said.
“This position was reaffirmed in 2016. We’ve talked to participants and believe these rules work in everyone’s best interests to provide long-term certainty.”
Lobbying for change
For organisations operating in other energy-intensive industries covered by the CCA scheme that are in decline, it might make sense to close it off to new participants, said Fryer.
The UK datacentre market is booming, though, and the government should be doing all it can to encourage that growth to continue, which includes extending the deadline for new entrants to the CCA scheme.
“Industries that are in declining don’t tend to be having new facilities being built all the time, or – in some verticals – it can take decades of planning to get a new sites up and running. For example, I don’t think we’re planning any new steelworks in the UK,” she said.
“The datacentre sector is very different because it is expanding very quickly and we have new sites coming online all the time.”
TechUK will continue to lobby BEIS, in the hope of getting it to change its position, Fryer confirmed, and – in the meantime – is urging the datacentre community to join its campaigning efforts.
“We’re really trying to tease out the full scale of the implications for the sector, because there are all these odd shades, complexities and nuances. So they need to tell me how it will affect them,” she said.
“I’m trying to raise awareness among people who might be eligible that I may not have direct access to, such as new operators that have not got round to joining TechUK yet, and – if you’re going to join, pull your finger out.”