David Crouch in Gothenburg
Wednesday 22 October 2014 21.03 BST
Hydro66, a data centre provider financed by Black Green Capital, is launching a new facility 70 miles from the Arctic circle in Boden, with the aim of housing high-powered computing equipment for corporate IT customers in Europe.
With 800 million people “within 50 milliseconds” of the site, its investors claim they will attract corporations seeking to house their data at low cost and with a small carbon footprint, thanks to Scandinavia’s sub-zero temperatures, cheap hydroelectric power and fast fibre-optic network.
The new facility will be a tenth the size of Facebook’s, but that has tens of thousands of servers packed together in long aisles, where natural cooling can save a significant amount of power.
The latest project depends on persuading companies to locate their servers more than 2,000km from London or Paris, at a time when energy prices are falling and the market for data centres is fast-moving and competitive.
Facebook revealed three years ago it would build its first data centre outside the US in Luleå, 80km south of the Arctic circle, for its own exclusive use; the company said in March it was constructing a second large centre on the site. Bitcoin company KnCMiner this year opened a data centre in nearby Boden where clients can “mine” the digital currency remotely, requiring prodigious amounts of energy and computing power.
“We are looking at a step change in terms of efficiency and green credentials,” said Paul Morrison, business development director at Hydro66.
The company plans to invest £50m over five years, starting with an 8,000 sq metre (86,000 sq ft) data centre with 40MW of capacity. It received planning permission from Swedish authorities on Wednesday and is due to open in April or May next year.
The company announced a small “proof of concept” project in May on a brownfield site, whose success is the basis for going ahead with the main investment, it said. The new centre’s computing capacity is equivalent to almost twice the total new dedicated data centre demand in London in 2014, according to analysts CBRE.
Black Green Capital said its team has an established background of data centre operators in Europe. It is led by tech entrepreneur David Rowe, who sold broadband provider Easynet to BSkyB in 2005 for £211m. Its investment in Hydro66 is pure private equity with no debt.
Data centres have been described as the technology world’s dark energy-guzzling secret. A report by Bank of America Merrill Lynch last month said energy efficiency could become a significant driver of growth for the $220bn (£137bn) cloud computing market, with information and communication technologies already consuming 10% of the world’s electricity. Smartphones, corporate “big data” and the internet of things would further expand the digital universe by a factor of 10 by 2020, the report said.
Scandinavia is attractive to data centre providers – Google opened a dedicated centre in Hamina, Finland, in 2011. Green Mountain Data offers data management outsourcing inside a Norwegian mountain cooled by a fjord, while Verne Global runs a similar facility in Iceland.
But finding customers outside the region has sometimes been difficult. Knut Molaug, chief executive of Green Mountain Data, which runs a colocation data centre deep inside a mountain at a former Nato ammunition store near Stavanger, Norway, said the company has targeted the British market for more than two years, but had yet to secure a customer, though negotiations were “starting to have considerable traction”.
Some analysts are sceptical about the business model behind outsourcing data management to Scandinavia. The price advantage of locating a data centre in Sweden is small and likely to shrink as technological advances expanded the capacity of cloud computing centres much closer to European business hubs, according to Kjetil Ertnæs, a data centre consultant in Oslo.
“You might have cheaper electricity for five to 10 years, but you need to think very long term, and the risk will probably be too high for most players because it is difficult in the wholesale colocation market to predict the future,” Ertnæs said.
Tim Anker, director of Colocation Exchange, a UK broker of space in data centres, said the new centre would be “very tricky to sell. There are a lot advantages to the Nordic region, but the markets in Amsterdam and London are highly competitive. For large wholesale users it makes sense, but the distances involved in any latency sensitive application, such as banking, makes it inappropriate.”
But Tiny Haynes, data centre analyst at Gartner, said the sector was set to go the same way as the aluminium industry, where smelters have moved close to hydroelectric dams. His calculations suggest a company in Docklands, London could save 42% on its data centre costs by relocating to Norway.
“People are dipping their feet in the water, but no one has gone for it in a big way,” Haynes said. “The scepticism is justified, it is no trivial thing to migrate [IT applications abroad].”
Jeff Monroe, chief executive of Verne Global – whose colocation data centre in Keflavik, Iceland, counts German carmaker BMW and Silicon Valley’s Risk Management Solutions among its customers – said there was what he called a “data gravity” trend for companies to split their IT applications and move the low-latency operations – those that can operate with a tiny time delay – towards the north.
But the sector needed more participants, he said. “It’s like building a restaurant on top of a hill. Once you open you want more restaurants nearby to help draw in the public.”
Gary Cook, senior information technology analyst for Greenpeace International in Washington DC, said Facebook’s commitment in 2011 to become long-term carbon neutral had informed its move into Sweden and helped “change the conversation” among companies with heavy data needs.
“A lot of organisations are considering switching to the cloud, and you are seeing more and more players in the market place saying ‘this is good, but what is our carbon footprint going to look like?’” Cook said.