An infrastructure portfolio in 2022 would look incomplete without the inclusion of a data-based asset – we are, after all, in the “Age of Big Data”. At the start of the pandemic, KKR invested over $1 billion in Europe-based Global Technical Realty. In January, Keppel Capital was able to close its second dedicated data centre fund on $1.1 billion. And in February, CIM Group announced the formation of a joint venture with data centre operator Cologix.
These are just some examples of a broader trend within private money: the data boom. Capital has been flowing into the sector from all angles, with data centres becoming a main attraction for infrastructure investors – and with good reason. As the digital revolution continues, and as post-pandemic life adjusts to relying on digital forms of sharing and connecting, storage is needed for the multitude of data points created along the way. According to the International Energy Agency, global internet traffic doubled between 2017 and 2020, and is set to double again by 2023.
LPs and GPs alike have taken notice of this increased demand. Matthew Norris, head of real estate securities at Gravis, says: “Why do we like data centres? Why do we like digital infrastructure? For us, it’s all about contractual leases, high cashflow predictability. Our definition of digital infrastructure – communication towers, data centres, fibre optic networks, logistics warehouses – that’s what our investors like.”
“Customers don’t ultimately care how much wind or solar you have in the makeup of your particular solution. They want it to be carbon-free”
But there is trouble in paradise. According to the IEA, data centres accounted for nearly 1.25 percent of global electricity demand in 2020, which translates into an annual consumption of roughly 260 to 340 TWh by data transmission networks. And while data centres’ energy usage efficiency has been continuously improving, there are fears that the sector’s consumption might yet increase.
Seeking efficient solutions
Many traditional asset managers have reacted to the situation by focusing on energy efficiency. At Gravis, Norris says they are mainly concerned about their assets’ power usage effectiveness (PUE). “We’re coming from a place where… modern data centres, they’re probably putting in 1.2 [PUE],” he says.
“Data consumption is increasing, so you need more efficient servers. What we can do as investors is push the companies to make more to design and build more efficient data centres. And I think European investors are probably more active than investors in most countries in pushing for more energy efficient buildings and then sourcing renewable electricity to power those buildings.”
Jennifer Gandin, an investment principal at CIM, agrees about the importance of efficiency, but she also highlights the issue of location. “In some of the locations where we are investing or where our assets are located, we can offer green sources of power to our tenants who care a lot about the sources of power. And then in other locations we have been able to introduce – and this is specifically through our partnership with Nova – a patented waterless cooling system… In all instances we want to offer an energy efficient solution. But in certain locations, we also can offer a green source of power and a waterless cooling option for a tenant.”
Location, location, location!
The idea that certain well-placed data centres could be green, maybe even someday carbon neutral, is not unique to Gandin – it is at the heart of the new business model of Quinbrook, a renewables asset manager.
“The increased specialisation that Quinbrook is embarking upon is looking at areas of industry that are needing to shift to renewable energy as part of their net-zero power plans and also as part of their forward procurement needs to power energy-intensive industry in the case of data centres,” says David Scaysbrook, Quinbrook’s co-founder and managing partner.
“Customers don’t ultimately care how much wind or solar you have in the make-up of your particular solution. They want it to be carbon-free; they want [carbon-free energy] to be available as close to 24/7 as possible. That’s favouring multi-technology operators like Quinbrook that play across the whole technology landscape, whether it be hydro, biomass, landfill, gas, solar, wind storage, we play across all of that.”
Scaysbrook did have one big caveat: “[Renewable energy solutions] need to be price-competitive, and that effectively is where the additional complexity comes in.
“We haven’t arrived at the place where technology really delivers those solutions cost effectively. Longer duration storage is certainly one of the areas that is the more prospective and hoped for. And there are a lot of candidate technologies that are emerging very quickly and show great prospect for being both cost effective and certainly taking us beyond the kind of barrier that we have at the moment, which is about four hours of economic storage.”
New ‘flared’ model
Earth Wind & Power, a Norway-based data centre solutions provider, is another firm that focuses, like Quinbrook, on the importance of location. Noticing that data centres were uniquely able to operate off-grid, the firm decided they would be ideal candidates for placement next to power plants, so as to assist in grid capacity complications and reduce energy waste.
“When building solar production facilities, it is the infrastructure that drives up costs, and building 2.5MW extra [in capacity] when you already have the rest in place is really not that big of a deal,” says Ingvil Smines Tybring-Gjedde, who before becoming Earth Wind & Power’s chief executive and co-founder, held a number of government positions in Norway, including that of minister of national public security and deputy minister of petroleum and energy.
“We come in ahead to buy the energy while they’re building the infrastructure. What we see now is that they’re able to add on, using us as a battery or a negative battery for them, so that we can produce and operate on the offtake when they can’t deliver energy into the grid or when they are over capacity.”
That gets to the heart of EWP’s model: the firm focuses on solving the issue of energy waste, in particular waste from gas flaring. By positioning data centres near flare sites, the firm is able to capture energy that currently cannot be transported or stored.
“It’s really, really important to utilise all the energy as best we can for all kinds of energy sources,” says Tybring-Gjedde. “EWP has a good solution for renewable energy waste, just as we have for [gas] flaring.”
EWP’s facilities around gas flaring sites not only utilise energy that would otherwise go to waste, as the energy from flares cannot be transported off-site, but also work to reduce stress on the grid and lower overall emissions from the site.
For instance, methane and volatile organic compound emissions from flares are reduced by nearly 100 percent, while carbon monoxide emissions are, in turn, reduced to a guaranteed level of 15 parts per million, and those of nitrogen oxides may be reduced to a level of 9 ppm.
Do we really need for all data centre services to be available 24/7? Do we need 110 percent of everything?
Ingvil Smines Tybring-Gjedde
Earth Wind & Power
Tybring-Gjedde explains: “We take that flare gas, which is 150 percent of what we are exporting” – 150 percent of Norway’s annual gas exports, that is – “and we capture that with the technology and know-how that we’ve developed since the very beginning, 50 years ago in Norway. We burn it and we make a cleaner burning process so that we can reduce the emissions.”
The future is buffering
During discussions around energy transition, an industry will often pinpoint what needs to be done to make itself carbon neutral, will set that final puzzle piece down, and step back to see that the “finished product” is just a snippet of a much larger picture.
With data centres, it is no different. Time and again, fund managers insisted that green data centres could not exist without ample access to green energy.
“Data centres corporately are already the largest buyers of renewable power on the planet,” Scaysbrook notes.
“There’s no one silver bullet solution, if you like, other than solar and storage, which is certainly popular in high solar radiation states of the US, like California and Arizona and Texas, for example. Certain locations might be near a geothermal resource. There may be others that are near biomass, let’s say, or even green fuels that tend to be more expensive.”
Norris agrees that procurement of renewable energy is key to greening data centres moving forward.
“If you and I decided to build a data centre in Hong Kong today, electricity is so scarce that we probably couldn’t get the electrical utility companies in Hong Kong to provide us with power for three, four, five years, many years away,” he says.
Access to energy – to green energy – therefore makes all the difference. Norris adds: “If we were a government that said, ‘We need all of our data centres to have a PUE of 1.5 or lower’, I think it’s going to take years to implement, whereas if you said, ‘Okay, everyone’s got to have renewable power’, it would probably be easier.”
Does this mean there is nothing that “eco-unfriendly” data centres can do in the meantime?
Not according to Tybring-Gjedde. “I think it’s really important that the different data centre companies are aware of their responsibility as a highly energy-demanding industry. Do we really need for all data centre services to be available 24/7? Do we need 110 percent of everything? Do we need to be on grid all the time at full speed?… We know that the cloud doesn’t have to be on 24/7. Why are they then on grid? Why are they taking capacity in the fibres or in the grid?
“Maybe a broad suggestion [to current standard, energy-consuming data centres] is to diversify their services and where they produce it. I’m sure that the other data centre service providers don’t need full capacity at all times for all services.”
Whether or not data centre operators take her up on her advice remains to be seen. As governments across the globe dedicate more resources to clean energy, and as private markets help to build the necessary infrastructure, will data centres be first in line for those procurement contracts?