As the reliance on IT increases, so does FDI in the data centre industry, up by almost 12% for projects and 3.5% for capital investments year on year since 2009. The fast-growing subsector is a hotspot for investment and recent years have seen rising FDI in services such as cloud computing and hybrid IT, according to greenfield investment monitor fDi Markets. Yet the fundamental questions of geography and energy seem to change according to the needs and philosophies of individual companies.

Power availability, reliability and cost are the top selection factors for data centre investment. Connectivity and reliability often require proximity between a data centre and its clients’ markets and urban centres, but when it comes to reliable, affordable energy, the compass appears to be pointing north.

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Head north

“What we are seeing is companies moving north with their servers. The big companies that do their own data centres are going north – Sweden, Finland, Ireland – anywhere they can get wind energy and a beneficial cooling impact,” says Jeff Monroe, CEO of Verne Global, a UK-based data centre operator that in 2012 opened a centre in Keflavik, Iceland.

Mr Monroe cites a number of factors for this trend, with a particular emphasis on energy costs and land space, but notes that this shift is not limited to IT giants such as Google and Facebook. “The big companies’ utilisation is dwarfed by the enterprise utilisation. People doing high-performance computing, life sciences, education, engineering… all that core computing that goes on is far bigger as a market than just a single data centre for [the likes of] Google.” Verne Global recently secured $98m of equity funding led by an Icelandic asset management and private equity firm.

Proximity to markets is a critical factor as well, according to Matthew Finnie, chief technology officer of Interoute, Europe’s largest cloud services platform, whose customers include UEFA and the European Space Agency. “The proximity to market really matters here because Europe is a collection of national markets. Most companies in Europe will start out in a national market and in their own language. It’s just more efficient,” he says.

Interoute has 12 data centres, 13 virtual centres and 32 colocation facilities across Europe, with several facilities situated in London’s Docklands area, a major European hub for data services. While space is more limited, and land and power costs are higher, Mr Finnie argues that the connectivity speed and quality ensured by the proximity to markets still makes it a central spot for investing in data centre facilities.

Location strategies

But different companies value different metrics. Tanya Duncan, managing director of Interxion, a leading European cloud and carrier-neutral data centre provider with more than 39 centres in 11 countries, says that location strategy depends very much on the actual services required by client companies. Because of the branching out of applications, companies are increasingly buying or renting data space in multiple geographies according to suitability.

“If you are engaging in high-frequency trading, for instance, you need ultra-low latency to provide those services – London is the perfect example in this case,” says Ms Duncan. Pure data storage applications are better suited to centres in Iceland or Scandinavia, where cost is effectively more important than speed.

Many companies prioritise energy and land costs, basing themselves in places such as Iceland, as is the case with Verne Global, which serves clients including BMW, RVX animation studios and telecoms provider Colt. “Energy in Iceland is inexpensive and massively abundant – it’s all geothermal, hydro-electric and wind powered. The typical data centre will spend 50% to 100% more than core energy costs just to remove the heat that servers produce. Now we have this Icelandic equation where cooling is free thanks to the Gulf Stream,” says Mr Monroe.

Others will keep it local, as has happened with customers of Denmark’s colocation provider Nianet. “Most of our clients are Danish, although some of our client companies operate services for other European customers,” says chief executive Rasmus Helmich. Nianet’s customers, many of which are public sector, see obvious benefits in staying local, including language, proximity to their market and familiarity with the regulatory environment. Owned by 14 Danish utility companies, Nianet is the fastest growing fibre network in Denmark.

In terms of energy, Denmark, as is the case in much of the rest of northern Europe, has that ever-critical climate that helps keep cooling costs low while operations heat up. With regards to connectivity, Mr Helmich says: “A lot of the fibre capacity going from North America to Europe will be landing not only in the Netherlands and the UK, but also in west coast of Denmark and going via Copenhagen to the rest of Scandinavia, the Baltic states and Germany. You have a very well-connected location in terms of infrastructure, as well as political and physical stability.”

The cool kids

European hotspots – or, more specifically, 'coldspots' – to watch out for include the Scandinavian countries, whose low temperatures, fast fibre-optic connectivity and cheap hydroelectric power prove highly attractive for investors. Nordic countries boast some of the fastest rates of data centre investment growth in western Europe – total investment increased by 17% in the 2012-13 period alone.

Other locations, such as Ireland and the Netherlands, are also increasingly attractive thanks to their tax climate and green energy perks such as wind power. In 2014, Google announced a $673m investment to build a 100% renewable energy-powered data centre in the northern Netherlands, and in 2013 topped $1bn in investment in its Hamina, Finland, data centre. Finland offers comparatively low energy tax rates and a data cluster that analysts predict will generate a total economic impact of $8bn to $12bn in the next decade.

Apple recently announced plans to establish two data centres in Ireland and Denmark, with a total projected investment of $1.91bn, much of which will be dedicated to renewable power sources to supply the plant. Greenpeace even praised Apple as the only tech company using 100% renewable energy to power its data facilities. And Facebook users in Europe are mostly routed through the social media company’s first non-US data centre in Luleå, Sweden, just south of the Arctic Circle. The social media giant’s Arctic experiment has been called the most energy-efficient computing facility ever built, running three times cleaner than the average data centre, thanks to Facebook’s efficient application of Sweden’s green energy resources.

John Amundsen, chief executive of StoreSpeed, a Norwegian data centre start-up with a focus on the environment, stresses the country’s strategic position for clean energy access. “We believe the current trends in building larger and larger data centres must be in line with environmental aspects regarding energy use. Our climate is very suitable for data storage and we can use free seawater cooling all year,” he says. 

StoreSpeed is positioned in a city development area close to Norway's main power grid, “so energy is available next door at a very low cost”, adds Mr Amundsen. Offering 4000 square metres of space inside a mountain in south-east Norway, the company boasts very secure storage as well as hydropower and excess heat recycling. StoreSpeed is currently in the process of attracting clients and hopes to begin operations by the end of 2015.

Ireland also stands out as a data centre hub, especially with Apple’s incoming installation in the country. It also offers a cool climate, but more specifically boasts one of the lowest corporate tax rates in Europe, as well as comparatively low labour costs and a highly tech-savvy workforce. “Transatlantic cables hit Ireland before the UK and continental Europe, making it a prime location for many international IT organisations,” according to an Interxion report on host countries in Europe.

A hybrid future

Research suggests that future IT strategies will be increasingly hybrid – that is, a multi-sourced combination of on-premise data centres and off-premise private and public clouds. According to a recent report by research firm IDG Connect, 45% of enterprises are already running hybrid IT solutions. When surveyed, 51% of respondents indicated “they expect to move more workloads to the public cloud within the next five years”. With a traditional data centre, says Mr Finnie at Interoute, a company buys two to three years’ worth of space and hopes to fill it up. The cloud model is much simpler as the company only uses as much as it needs, making its costs and demands much more aligned.

An obvious trend to look out for will be the need for greater capacity as IT reliance continues to grow. “Capacity is a very big driver for change," says Mr Helmich. "Physical infrastructure around the fibre may begin to host and manage capacity outside the data centre, so the historic centralised approach where all servers are situated in one big data centre will be less relevant. More processing capacity will move out into the network.” This means that operators without both fibre infrastructure capacity and data centres may fall behind. The companies providing both will have a better starting point than those that do not, according to Mr Helmich. 

Nianet stays ahead of the curve, says Mr Helmich, by providing IT operations, cloud computing and colocation as opposed to mere traditional data hosting. “You can’t be a company that is only dependent on selling floor space. You need to be able to offer a broader product portfolio, but a product portfolio that is closely related to the data centre core business,” he says.

The combination of cheap and clean energy, a multi-faceted approach to data services and good connectivity seem to come together in the north of Europe. And as IT approaches 10% of all global energy consumption, innovation on the energy front is in high demand, according to Mr Amundsen. “The innovation of new servers and other storage technologies is very promising as the storage of information increases – but it needs to be developed further,” he says. 

Iceland is nice for Verne Global 

Jeff Monroe has hit the jackpot when it comes to data centre spots. The CEO of Verne Global opened the company’s first data storage facility on a former NATO base in Keflavik, Iceland, in 2012 and has been reaping the benefits ever since. Key site selection factors for data centre locations involve power reliability and cost, connectivity, skilled labour, security, land cost, business climate and green energy potential. And as Verne Global discovered, Iceland ticks all the boxes.

“Iceland had the geological component, the infrastructure component and the operational component,” says Mr Monroe. The facility runs on 100% renewable energy, which is abundant and inexpensive, thanks to the country’s harnessing of its geothermal, hydroelectric and wind power. Iceland’s industrial power grid is more than 95% efficient and can offer long-term contracts due to aluminium smelters that run around the clock.

To add to the mix, Iceland is dominated by the Gulf Stream, meaning 100% free cooling for their servers and a saving of between 50% and 100% of additional costs for air conditioning. On top of this, Iceland offers plentiful land and a highly educated population among which English is widely spoken, and where IT programming is part of the national curriculum. And finally, there is connectivity. “All of this would not be possible if it weren’t for Iceland investing in a multi-terabit, multi-redundant sub-sea cable system connecting it with Europe and North America. That was it for us. With all those dynamics in place, we felt like this was the optimal place for a data centre,” says Mr Monroe.

“The watershed customer was BMW,” he adds. BMW first tested Verne’s facilities by placing one of its high-performance computing cells in the Iceland centre and one in Munich in a room next to the company's scientists. The scientists were not told which cell they were operating from and after 30 days Verne got feedback: they had no idea the cell was in fact operating from Iceland. “That was the moment where chills went down my spine and I just went, 'yes',” says Mr Monroe.