What is behind Stockholm’s datacentre boom?

The Nordic datacentre boom continues as more businesses take advantage of the incentives offered by local governments in the region.

Towards the end of 2019, it was announced that three companies – Advania Data Centers, Interxion and IP-Only – were planning to build new datacentres in Stockholm. Once they are fully operational, the new facilities could potentially heat up to 35,000 nearby residential apartments through heat recovery.

The city will pay the centre owners for this heat energy, which would otherwise be wasted, providing a financial incentive for firms to locate datacentres in Stockholm.

This is part of a broad trend of major international tech firms choosing to establish datacentres in the Nordic countries. In the recent past, Apple, Facebook, Google and Microsoft have either announced or begun to construct datacentres.

Apple and Google are investing $1bn and €600m, respectively, on datacentres in Denmark, while Microsoft has datacentres located in the Norwegian capital, Oslo, and has already started signing up service providers to sell its services in the region.

These investments build on a strong trend of datacentre growth in the Nordics over the past decade, as Computer Weekly has reported. This includes Amazon Web Services in 2018, Facebook in 2017 and Ericsson and other major players in 2013. Even back in 2015, it was clear that the Nordic region held significant economic appeal, with each country offering something different to potential datacentre investors.

But why are the Nordics in general, and Stockholm in particular, so attractive to datacentre builders? Geography plays a major part. Datacentres are packed with servers, all of which generate significant amounts of heat, so locating them in a colder environment makes a lot of sense.

It reduces the amount of energy – and therefore money – required to keep the servers cool enough. The greater the difference between the internal and external temperatures, the less work the cooling system has to do to prevent the servers from overheating.

Taking this a step further, the idea of paying datacentres for recovered heat energy comes from Stockholm Data Parks, which was launched to help the city become fossil fuel-free by 2040. Heat recovery has been promoted in Stockholm since a pilot project with IBM in 1979 and is managed by Stockholm Exergi, which provides heating for more than 800,000 people in metropolitan Stockholm, along with cooling for some 400 hospitals, datacentres and other properties.

In 2018, Digiplex signed a similar agreement to provide heat to about 5,000 homes.

“With Interxion expanding and IP-Only and Advania Data Centers choosing to enter Stockholm Data Parks to actively engage in heat recovery, this announcement sets a new standard for the datacentre industry,” said Erik Rylander, head of Stockholm Data Parks at Exergi.

But the cooling – and heating – advantage is only part of the story. Datacentres have requirements other than cooling. If that weren’t true, international IT companies would be queuing up to build in Siberia. Political stability is important, too, as is geological stability, and there must be excellent internet connectivity, or at least the opportunity of building connections to major internet spines.

“There are various factors as to why the Nordics continue to get global market investment,” said Manoj Chandra Jha, lead analyst – cloud and AIOPs services at tech research and advisory firm ISG. “This includes new customer segments, energy prices, renewable energy and ease of doing business in the region.”

Then there are the “softer” reasons. Datacentres require employees, and employees need incentives. Money is certainly one incentive, but if you want to recruit the best IT people, then increasingly you have to go where they want to live. A remote village in Greenland isn’t likely to attract as many suitable applicants as a cosmopolitan city such as Stockholm.

Finally, of course, there are the incentives to the technology companies, both direct and indirect. In an effort to attract more such companies, Invest Stockholm is making it easy for them to locate there, smoothing bureaucracy and helping to ensure that potential new corporate investors in the region have the business resources and infrastructure they require.

Another incentive is good public relations. Nearby homes would have to be heated anyway, so it makes sense to use the heat from datacentres, which would otherwise be wasted.

“There is an increasing realisation that end-users are expecting datacentres to offer sustainable solutions,” said Exergi’s Rylander. “With our willingness to pay for excess heat, locating in Stockholm is not only more profitable, it also provides a competitive edge for these datacentres in responding to customer demands for climate-neutral computing.”

According to ISG’s Jha, the Nordic region is likely to benefit from continuing, significant datacentre investment by US hyperscalers. “Perhaps we will continue to hear more announcements from global business powerhouses, including cloud service providers, which would result in more than 20,000 jobs being created in the region,” he said. “I firmly believe that datacentre investment in the region will be multibillion-dollar in the next three to four financial years.”