The second coming: The Nordic datacentre market comes of age

Risk averseness

Another major problem operators had to overcome was the risk averseness of enterprise IT buyers, who tend to favour datacentre locations that are in easy reach of their own headquarters.

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

And if they did manage to convince a company elsewhere in Europe to relocate their applications and workloads to a datacentre 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.

That’s mainly because enterprises do not want to run the risk of signposting 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

However, 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.

Concerns about the quality and performance of network connections between some of the 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 centred on addressing that.

As such, operators across the region have embarked on numerous projects and initiatives that have sought 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 datacentre hub, as Tate Cantrell, chief technology officer 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 fibre cable system there,” he says.

“There is no way you’re going have a datacentre industry if you only have one cable system, so we got the second and the third built before we had even 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 cable systems connecting Iceland to North America, Scotland and Denmark, and an additional one is planned that will eventually connect the country to Dublin, home to Europe’s second-largest datacentre hub, says 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 datacentres is by funding this additional 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 datacentres 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 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 scepticism 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 they continue to improve on them.”

And they’ve played a big part in attracting enterprise and hyperscale datacentre clients to the Nordics, which is no mean feat given that both groups typically favour tried and trusted locations to host their workloads, continues Wallage. “It’s a virtuous circle,” 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, as well as where and who they choose to outsource their IT requirements to – particularly as headlines about climate change-related extreme weather events are becoming more prevalent and increasingly common.

At the same time, demand for colocation capacity in 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 of these situations have presented an opportunity for Nordic datacentre operators to restate and refine their value propositions to enterprises that 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 past few years, and we’re reaching a level of maturity now where [the region] can compete and attract clients that 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 datacentres 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 in 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 a reason why these three countries 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 in all three countries was also flagged as a plus point, but it is this combined with Sweden’s standing as a member of the European Union that 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. “Its EU membership [also] means Sweden is a gateway to the largest economic zone in the world.”

These factors explain 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 datacentres it operates in the country back in 2013. Since then, Microsoft and Amazon Web Services (AWS) have also established a datacentre presence in the country, and Google recently secured the environmental permits needed to do the same.

It is also worth noting that Denmark is – like Sweden – an EU member, with the Arcadis report flagging its “proximity to large EU countries” as an important factor in its ability to lure in operators, but 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 datacentre in Odense, Denmark, in September 2019, and a year later, Apple followed suit with a facility of its own in Viborg. Several months later, in November 2020, a €600m datacentre that Google had under development for two years went live.

In addition to this, Microsoft set out plans in December 2020 to build a renewably powered datacentre 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, and news also emerging around this time that Google had acquired a 481-acre site to develop into a datacentre.

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

“Historical latency issues are becoming less of a constraint, and the continued investments from datacentre operators is placing Norway in an extremely competitive position with neighbouring 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 with ease,” he says.

“Our figures are just starting to tell the story of the real importance of green energy in the datacentre industry.”

Overall, Ed Galvin, CEO and founder of datacentre-focused analyst house DC Byte, says there is mounting statistical evidence to suggest 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 in the Nordics.

“I think the Nordic region looks set to have its day in the sun after several years of falling short of expectations,” says Galvin.

“Consider that Microsoft now has three hyperscale datacentres under construction in Sweden [Malmö, Gravle and Sandviken], while Google is forging ahead with planning permission in Horndal, 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 do 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 amount 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 separate 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],” says Galvin.

On this point, Computer Weekly understands 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, says Danseb Consulting’s Wallage.

“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.

Power supply constraints

As previously mentioned, the surge in demand for datacentre 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 there is sufficient power being supplied to local homes and businesses, as the number of datacentres 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 datacentre hub. Its growth has been fuelled in recent years by the hyperscale cloud and internet giants, and their seemingly insatiable demands for compute capacity.

The country’s utility regulators have raised concerns about the impact this is having 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 datacentres.

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 prioritising planning application approvals for operators that agree to build 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 specialises in the provision of carbon neutral colocation services.

“If the datacentres in Dublin, London, Amsterdam and Frankfurt think they’ve got a problem with power now, there are bigger challenges coming down the line that will exacerbate the issues they’re currently seeing,” 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 across the world 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 have the potential to introduce new and additional pressure on electrical grids in some of the major colocation hubs that are already creaking under the pressure. This is why it makes sense now for enterprises to consider making provisions to outsource 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.”

It’s a notion that is becoming increasingly compelling for enterprises in the wake of efforts to upgrade the quality and speed of 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 how they do their compute.”

Connectivity and latency concerns

As an 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 [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 very small part of their [overall] compute. Around 85-to-90% of their compute isn’t ultra-low latency, and can be down anywhere.

“People are realising that now,” says Connolly. “Yes, it’s a little bit more complicated and means you’re dealing with two datacentres instead of one, but we’re all dealing with that and learning how to work from a distance these days. Having a datacentre that’s a few hundred miles away is not such a big deal.”

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

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

“Amazon, Google and Microsoft, for example, went to the largest city centres, with the most eyeballs, and built structures to house 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 in these large, one-size-fits-all datacentre regions, and could instead be hosted in less congested and power-constrained parts of the world.

“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 terabit 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.”

As is often the case where datacentre strategies are concerned, the biggest challenge is often 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 seems the tide is turning in the region’s favour, as climate change-related weather events increasingly dominate headlines and sustainability concerns start to have more of a sway on enterprise IT purchasing decisions.