Norway datacentre strategy producing dividend

Norway's strategy to become a favourable location for Nordic datacentres is gathering steam

Norway’s ambitious Data Centre Development Strategy (DCDS) is beginning to deliver a concrete dividend with widening international interest and capital investment projects.

The DCDS forms an integral part of a broader government plan to harness strong domestic growth in datacentres and cloud services to bolster the general competitiveness of the Norwegian economy and indigenous companies.

Backed by energy and property-specific tax reforms, the DCDS was a major contributing factor driving decisions by Microsoft and Amazon Web Services (AWS) to locate new datacentre-linked operations in Norway.

The Norwegian government’s roll-out of the DCDS in 2018 had envisaged a slow but steady uptake of perks, which includes a range of attractive tax incentives and access to guaranteed low-cost hydro and wind-generated renewable energy.

Furthermore, the DCDS package incorporates state support to help developers find suitable cold climate locations for new datacentres. Sweden and Denmark have both had success in using lower-operating-cost cold climate offerings to lure datacentre ventures.

The DCDS offers foreign and native investors fixed tax-based incentives intended to reduce datacentre operating costs. The aim is to elevate Norway’s status as a Nordic hub for foreign-operated datacentres. The importance of a well-defined, tax-friendly operating environment is regarded as a fundamental tool to attract overseas capital investments in Norway’s emerging datacentre sector.

For example, in Sweden, the government is reviewing its energy-related tax policy in the wake of several high-profile bankruptcies by datacentre companies since February 2019. Court filings by Bolooba Data Centers and Teschshelf identified tax changes that limited tax refunds on energy usage as factors contributing to unsustainable operating losses.

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Aside from attracting international actors, the DCDS incentivises joint venture-style partnerships between leading energy producers in Norway and overseas datacentre investors. Statkraft, Norway’s largest state-controlled hydro-electric power supplier, is using the framework of the DCDS to actively look for international partners for new datacentre ventures and investments. 

“The strategy comes with strong political support. Stakeholders are incentivised to work to attract datacentres to Norway. Statkraft wants to become both a facilitator for investors through our datacentre project, and as a possible energy supplier,” said Atle Haga, project manager at Statkraft Data Centres.

The DCDS strategy commits to developing an operating environment whereby datacentre operators are guaranteed a business-friendly regulatory framework that delivers a simplified and more growth-inducing tax system. In addition, investors can access a state-supported infrastructure that includes a labour pool of technical skills and talent. 

Norway’s 2018 budget laid the groundwork for the successful implementation of the DCDS. The government prioritised tax reforms that supported efforts to grow the country’s datacentre industry. The tax reforms agreed in the budget also served to promote government initiatives to channel more private capital in to new business start-ups by softening wealth tax rules.

In the specific case of datacentres, the reform lowered the consumer tax on electricity delivered to medium and large-sized plants.

Cost-saving measures

The 2018 budget contained other cost-saving measures targeted at datacentre operators. The government responded to complaints by investors that local property taxes, which vary greatly across Norway, were an obstacle to attracting mega-scale datacentre projects.

Under the 2018 budget, industrial property classified as works and installations can be taxed as “other commercial property” without the inclusion of “production equipment and production installations”. This distinction provides a real cost-savings benefit to datacentres of all types, from datacentre domain enterprises to co-location hyperscale cloud service provision facilities.

Microsoft’s expansion of its datacentre business in Norway forms part of a strategic partnership with the state-owned energy group Equinor (formerly Statoil). Microsoft will provide expertise to accelerate Equinor’s IT development and establish new datacentre regions in Norway.

The US company will also support Equinor’s plans to develop energy industry-specific IT services that ensure a faster transition to the cloud and complement Equinor’s expansive digitisation project.

Expanding investment

The partnership with Equinor will see Microsoft build two new datacentres in Norway at sites near Oslo and Stavanger on Norway’s west coast. The project is a significant one for Microsoft, which is eager to expand its investment in cloud computing business in Norway and across the Nordic countries generally.

The Oslo and Stavanger facilities will power Microsoft’s cloud offerings in Norway. This stable of offerings includes services such as Azure, Office 365 and Dynamics 365. Azure will be the first service launched at the Oslo and Stavanger locations, and the roll-out is scheduled to take place during the final quarter of 2019.

Equinor will become a key client of datacentres operated by Microsoft in Norway. The Norwegian government views the Microsoft-Equinor partnership as a collaborative business model for other Norwegian energy companies, state and private, to follow.

“This is the kind of joint venture partnership the government had in mind when it launched the datacentre strategy,” said Torbjørn Røe Isaksen, Norway’s Trade and Industry minister.

A decision by AWS to open an office in Oslo is also expected to lead to investments in datacentres.

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