The Nordic datacentre market comes of age

by Joseph K. Clark

The abundant supply of relatively cheap, green energy the Nordic region has at its disposal has seen it repeatedly hyped as an ideal location for enterprises and hyperscale cloud firms to site their data centers.

It has, however, taken these organizations perhaps a little longer to buy into this hype than analysts and operators initially envisaged.

“From a sustainability perspective, the Nordics had it all from the start and [the operators] created a good strategy based around the fact they have the energy, and they built a lot of data centers, but then they realized the customers weren’t coming. And operators started to realize that just having cheap power doesn’t necessarily bring the clients in,” Harald Riise, CEO of Norway-based datacentre service provider Compute Nordic, tells Computer Weekly.

Steve Wallage, managing director of datacentre market-focused analyst house Danseb Consulting, says part of the problem was how some operators marketed their facilities in the early part of this decade.

“The marketing wasn’t always great,” he says. “They might have an excellent PowerPoint presentation and talk a lot about the great environmental and economic benefits of being in the Nordics, but they didn’t talk about what this meant in quantifiable terms.

“How much money would a company save by doing this or by how much would this reduce their carbon emissions by, for example?

“Now operators talk in much more specific terms about how they can meet the requirements of clients. In the past, they had more of a ‘we’re all things to all men’ [approach to marketing their facilities], whereas now it’s a case of, ‘if you’re an HPC user, this is what we can do specifically for you’.”

Risk averseness

Another major problem operators had to overcome is the risk averseness of enterprise IT buyers, who tend to favor datacentre locations in easy reach of their own headquarters, continues Wallage.

“It’s psychological, really,” he says. “People like to be able to visit the datacentre housing their IT or feel like they are reasonably close to it.”

And if they did manage to convince a company elsewhere in Europe to relocate their applications and workloads to a data center in Denmark, Finland, Iceland, Norway, or Sweden, for example, there were no guarantees the operator would be allowed to publicly name the client as a reference customer anyway.

Mainly because enterprises do not want to risk sign-posting to nefarious third parties where their business-critical data is being stored.

“There has always been a lack of case studies for operators to point to because many clients are not willing to talk about their [datacentre strategies] publicly. So the lack of real-world examples for operators to talk about did not make things easier either,” he adds.

Building on the sustainable appeal of the Nordics

A mix of government intervention, operator investment, and overseas marketing has served to bolster the region’s appeal to sustainability-conscious enterprises during the intervening years, though.

Concerns about the quality and performance of network connections between some Nordic countries and the major colocation hubs of Western Europe are known to have put off some prospective clients in the past. So some of the work to boost the appeal of the Nordics has centered on addressing that.

As such, operators across the region have embarked on numerous projects and initiatives to increase the number of high-quality network connections that feed into their datacentre campuses.

Iceland is an example of a Nordic country that has made a concerted effort in recent years to build out its network connectivity in support of its push to become a thriving data center hub, as Tate Cantrell, CTO of Icelandic colocation provider Verne Global, tells Computer Weekly.

“Iceland has been developing its datacentre industry since the mid-noughts, and when we [Verne] came in and started working on the concept of bringing international capacity datacentres to Iceland in 2007, there was only one viable fiber cable system there,” he says.

“There is no way you’re going have a data center industry if you only have one cable system, so we got the second and the third built even before we had gone live with our first product in 2012.”

HPC applications

That year also saw Verne Global sign up BMW Group as a reference customer, with the automotive giant signing a contract that would see it migrate an unspecified number of power-hungry, high-performance computing (HPC) applications to its renewably powered datacentre.

There are now cables systems connecting Iceland to North America, Scotland, and Denmark. An additional one is currently planned that will eventually connect the country to Dublin, home to Europe’s second-largest datacentre hub, in due course too, continues Cantrell.

“That [last] cable system has always been on the roadmap, and we’re at the point now where the Iceland government has looked at the exponential growth of the Icelandic datacentre industry and said, ‘the time is now. They see the opportunity and know the best way to promote Icelandic data centers is by funding this other cable system.”

Speculate to accumulate

As well as investing in network connectivity, governments in several Nordic countries – including Norway, Sweden, and Finland – have also introduced financial incentives in recent years to encourage operators to build data centers in their respective countries.

The Swedish government introduced a tax break in 2017 that sought to cut the electricity tax rate by 97% to encourage more hyperscale datacentre developments, for example, while Norway has had a system in place now for several years that allows operators to claim tax relief on their energy usage.

When these measures were initially introduced, they were greeted with a degree of skepticism and almost distrust by the datacentre community, says Wallage.

“There was a little bit of uncertainty about quite how long-standing these offers would be and whether they would be removed over time,” he says. “But there’s been a clear long-term commitment to [maintaining these incentives] and secondly, they continue to improve on them.”

And they’ve played a big part in winning attracting enterprise and hyperscale datacentre clients to the Nordics, which is no mean feat given that both groups typically favor tried and trusted locations to host their workloads, continues Wallage.

“It’s a virtuous circle, really,” he says. “As they get more clients talking about the Nordics and setting up shop there, it becomes an even more credible location, and more people follow suit.”

World events have also conspired to give enterprise IT buyers pause for thought about the sustainability of their technology supply chains and setups and where and who they choose to outsource their IT requirements to.

Particularly as headlines about climate change-related extreme weather events becoming ever more prevalent and increasingly common.

At the same time, demand for colocation capacity within the four major European datacentre hubs of Frankfurt, London, Amsterdam, and Paris (FLAP) is forecast to hit record levels during 2021 against a backdrop of concerns about how much more server farm growth these cities can accommodate.

Both these situations have presented an opportunity for Nordic datacentre operators to restate and refine their value propositions to enterprises who might have overlooked the region’s charms in the past, says Compute Nordic’s Riise.

“Each of the countries together and separately have been on a learning curve these last few years, and we’re reaching a level of maturity now where [the region] can compete and attract clients who have previously relied on fossil fuel-powered datacentres,” he adds.

Proof of this is evident in a 2021 report by design and engineering consultancy Arcadis, which set out to list the top 50 countries in the world for enterprises and hyperscalers to build data centers in, based on a variety of regulatory and infrastructure-related factors.

Of the top 10, nearly half of the countries that made the cut are within the Nordic region, with Sweden, Norway, and Denmark in fourth, fifth, and sixth place, respectively, followed by Finland in eighth and Iceland in 36th.

Energy security

The energy security offered by Sweden, Norway, and Denmark is flagged in the report as reasons why these three countries all ranked so highly, along with how readily available renewable power is to operators that decide to set up shop in them.

The availability of high-speed internet connections within all three countries was also flagged as a plus point. Still, this, combined with Sweden’s standing as a member of the European Union, appears to have seen it ranked higher than any other Nordic country.

“A growing share of renewable energy sources and reliable infrastructure adds to the country’s attractiveness as a datacentre investment destination,” the report states. “It’s EU membership [also] means Sweden is also a gateway into the largest economic zone in the world.”

These factors all go some way to explaining the high number of hyperscale cloud firms Sweden has managed to attract to its shores in recent years, with Facebook opening the first of three data centers it now operated in the country back in 2013.

Since then, Microsoft and Amazon Web Services (AWS) have also established a data center presence within the country, and Google recently secured the environmental permits needed to do the same.

It is also worth noting that Denmark is – like Sweden – also an EU member, with the Arcadis report flagging its “proximity to large EU countries” as an essential factor in its ability to lure in operators. Still, it appears to have lost marks because of how expensive the country’s electricity costs are.

That has not deterred the hyperscalers from building out their presence in Denmark, though. Facebook opened its data center in Odense, Denmark, in September 2019, and a year later, Apple followed suit with a facility of its own, Viborg. Several months later, in November 2020, a €600m data center that Google had under development for two years went live. In addition, Microsoft set out plans in December 2020 to build a renewably powered data center region in Denmark by 2024.

Datacentre regions

Norway has been no slouch either when it comes to attracting the hyperscalers, with Microsoft opening two datacentre regions in the country in November 2019, with news also emerging around this time that Google had also acquired a 481-acre site to develop into a datacentre too.

According to real estate consultancy CBRE, the Norwegian datacentre market is on course to grow by nearly 100MW between now and 2024, having experienced 36MW of take-up in the last two years.

As is the case for several other Nordic countries, Norway remains a destination of choice for organizations that want somewhere to run their more energy-intensive HPC workloads while also attracting interest from the hyperscalers.

“Historical latency issues are becoming less of a constraint, and the continued investments from datacentre operators are placing Norway in an extremely competitive position with neighboring markets,” says Henry Gray, datacentre solutions consulting analyst at CBRE Europe, Middle East and Africa (EMEA).

“Power is still the main attraction to the market where cost-saving and environmental, sustainability and governance (ESG) targets can be met easily. Our figures are just starting to tell the story of the real importance of green energy in the data center industry.”

Overall, Ed Galvin, CEO and founder of datacentre-focused analyst house DC Byte, says mounting statistical evidence suggests the Nordic region is really coming of age now and establishing itself as a mainstream datacentre hub.

“From a statistical perspective, if we look at the megawatts of power added from 2016-2021, we can report that Sweden has grown 258% (108-387MW), Norway by 180% (59-165MW) and Denmark by 123% (221-493MW),” he tells Computer Weekly.

Hyperscale cloud and internet giants

Much of this activity is being driven by the hyperscale cloud and internet giants, with Microsoft, Google, Apple, and Facebook all known to be in various stages of building out their datacentre presence within the Nordics.

“I think the Nordics look set to have its day in the sun after several years of falling short of meeting expectations,” says Galvin.

“Consider that Microsoft now has three hyperscale datacentres under construction in Sweden [Malmö, Gravel, and Sandviken], while Google is forging ahead with planning permission in Honda, as well as land-banking a new site in Skien, Norway.”

For this reason, after several false starts and unmet expectations, the Nordic region looks on course to become the internationally renowned datacentre hub its operators have always talked about it becoming.

“Denmark may well have taken the bulk of the hyperscale activity since 2017 with Google, Apple, and Facebook, but now it looks like Sweden and Norway are catching up. One notable absence is AWS. However, they seem to be building more in continental Europe beyond the traditional markets,” he adds.

Investor interest in Nordic datacentres on the rise

Beyond the talk of take-up rates and rising demand for compute capacity, another sign the Nordic datacentre market is coming of age can be seen in the increasing amounts of investor interest the region is attracting, adds Galvin.

As proof of this, he points to the recent acquisitions of two Norwegian datacentre developers, DigiPlex and Green Mountain, by independent investment firms, with both deals taking place in July 2021.

Verne Global also made headlines in September 2021 with the news that it was acquired for £231m by digital infrastructure investment fund, Digital 9 Infrastructure. “These deals certainly reflect an increasingly international interest [in Nordic datacentre assets],” adds Galvin.

On this point, Computer Weekly understands that DigiPlex received more than 100 expressions of interest from potential investors when news that it was up for sale emerged.

From a global perspective, there is a lot more interest in datacentres as an asset class right now than there has been previously, remarks Danseb Consulting’s Wallace.

“There is an awful lot of interest in the Nordics, and some of the valuations coming through have taken some people in the industry by surprise because of how high they are, but some of the companies have done very well so far [on their own], and investors are looking at how much better they could do if they had more investment,” he says.

datacentre

Power supply constraints

As previously mentioned, the surge in demand for data center capacity in several of Europe’s major colocation hubs – including Amsterdam and Frankfurt – has led to concerns being raised about power supply constraints in these areas. This has resulted in interventions to ensure sufficient power is supplied to local homes and businesses. The number of data centers plugging into the grid in these has risen markedly.

Another area where this trend is playing out is in Dublin in Ireland, which is now home to Europe’s second-largest data center hub. Its growth has been fuelled in recent years by the hyperscale cloud and internet giants and their seemingly insatiable demands for computing capacity.

The country’s utility regulators have raised concerns about the impact on the country’s energy security profile, with warnings this could lead to the onset of blackouts for Ireland’s homes and businesses in the years to come. For this reason, regulators and government policymakers have put forward suggestions that would serve to safeguard existing energy supplies while buying the country more time to bring online alternative sources of power to plug the gap caused by data centers.

These suggestions include introducing a moratorium that would ban datacentre operators from building grid connections for new datacentres for an unspecified number of years or prioritizing planning application approvals for operators that agree to develop sites outside of Dublin.

This, again, presents a growth opportunity for the Nordics. An emerging school of thought on this topic is that operators with datacentres in Dublin, Amsterdam, and Frankfurt, for example, could acquire additional capacity in the Nordics and encourage their users to migrate their more energy-intensive workloads there.

It is an idea being championed by various members of the Nordic datacentre community, including Compute Nordic, who specializes in providing carbon-neutral colocation services.

“If the data centers in Dublin, London, Amsterdam, Frankfurt, think they’ve got a problem now with power, bigger challenges are coming down the line that will exacerbate the issues they see now,” Tim Connolly, country manager for UK and Ireland at Compute Nordic, tells Computer Weekly.

Reliance on fossil fuels

Aside from the fact that demand for hyperscale or colocation datacentre capacity is predicted to keep on soaring for the foreseeable future, governments worldwide are pushing their populations to transition over to electric vehicles while taking steps to wind down society’s reliance on fossil fuels, he says.

All these actions can potentially introduce new and additional pressure on electrical grids in some of the significant colocation hubs that are already creaking under strain. This is why it makes sense now for enterprises to consider making provisions for outsourcing their energy-intensive workloads to the Nordics.

“This is not a problem that’s going to go away,” says Connolly. “That’s why taking a strategic view now – to shift what we can to those parts of the world where it makes sense to run these workloads because there is an abundance of sustainable electricity [there] that can translate into sustainable compute – is a good decision.”

And it is a notion that has become increasingly compelling for enterprises in the wake of efforts to upgrade the quality and speed of the network connections between the Nordic countries and other parts of Europe, it is claimed.

“We’re challenging people to say: why does your colocation site have to be within 50 miles [of where your business is]? It isn’t necessary,” says Connolly. “It’s [about] putting the right compute power and compute challenge in the right place, and this is requiring clients to rethink what and how they do their compute, and it’s happening.”

Connectivity and latency concerns

For example, Connolly cites conversations Compute Nordic has had with prospective clients in the financial services space, who have previously shied away from the idea of moving workloads out of London, Frankfurt, and Amsterdam because of connectivity and latency concerns.

“These clients have a preference for wanting [their data to be as] close to the financial exchanges as possible, because they have low-latency trading [platforms] that need to be on the exchange to achieve millisecond response times,” he says.

“We’re not suggesting they move [those workloads] out of these expensive datacentres in Docklands or the financial services capitals of Europe, but the workloads and applications they have that need to be ultra-lower latency make up a tiny part of their [overall] compute. Around 85-to-90% of their compute isn’t ultra-low latency and can be down anywhere.”

He adds: “People realize that now. Yes, it’s a bit more complicated, and it means you’re dealing with two data centers instead of one…but we’re all dealing with and learning how to work from a distance these days. So having a datacentre that’s a few 100 miles away is not such a big deal.”

While there is a tendency for enterprises to shy away from shaking up their data center strategies on resiliency and latency grounds, their behavior and preferences are also being shaped by the development plans of the hyperscale community, adds Verne Global’s Cantrell.

“Over the last two decades, we’ve seen this build-up of cloud computing and, for it to be a viable business model, we had to put a huge engine of computing that could serve all applications effectively,” he says.

“Amazon, Google and Microsoft, for example, went to the largest city centers, with the most eyeballs and built these structures to house the cloud computing in these major regions.”

Long-term sustainability

As time has gone on, though, specialist applications and workloads have emerged that do not necessarily have to be housed within these oversized, “one size fits all” datacentre regions and could be hosted in less congested and power-constrained parts of the world, he continues.

“Particular applications, especially when you have something that’s going to be continuously churning data and consuming a lot of energy, those are the ones that companies should start to think about the long-term sustainable impacts of running in these regions,” he says.

“If you are an enterprise with an artificial intelligence-based application, and you have the option of putting that load in Ireland – where all your data is – that may seem like the easiest way of doing things because it is just a matter of adding more capacity.

“Meanwhile, there is a high capacity, 100 terabits per second cable that connects Ireland directly to Iceland, by the way, and there is accessible capacity in the Nordics that can take that application too. That is an easy option too.”

As is often the case where datacentre strategies are concerned, the biggest challenge usually is convincing enterprises to push back against their preference towards doing things the way they have always been done.

Where the Nordics are concerned, though, it does appear as though the tide is turning in the region’s favor, as climate change-related weather events increasingly dominate headlines and sustainability concerns start to have even more sway on enterprise IT purchasing decisions.

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