Exclusion of datacentres from government-backed energy bill discount scheme 'no cause for alarm'

The datacentre industry’s omission from the list of sectors eligible to receive government-backed discounts on their energy bills from March 2023 should be no cause for alarm, it is claimed.

The UK government announced the second iteration of its energy bills discount scheme for business users in early January 2023, which is intended to provide eligible businesses, charities and public sector organisations with help covering the cost of their energy bills for 12 months until 31 March 2024.

“From 1 April 2023 to 31 March 2024, eligible non-domestic customers who have a contract with a licensed energy supplier will see a unit discount of up to £6.97/MWh automatically applied to their gas bill and a unit discount of up to £19.61/MWh applied to their electricity bill, except for those benefiting from lower energy prices,” said the government in a statement.

“A substantially higher level of support will be provided to businesses in sectors identified as being the most energy and trade intensive – predominantly manufacturing industries.”

The government published a list of the “energy and trade-intensive industries” eligible to receive support through the Energy and Trade Intensive Industries (ETII) scheme, as it is known.

Computer Weekly understands the publication of this list is what has has sent alarm bells ringing among some datacentre operators, because the sector is nowhere to be found on it.

In a statement to Computer Weekly, Luisa Cardani, head of the datacentre programme at UK tech trade body, TechUK, said it had been “engaging closely with its datacentre members” and the government on the issue.

“We continue to engage with government on the issue of the energy crisis and we look forward to facilitate the conversation with our datacentre members where necessary,” she said.

Speaking to Computer Weekly, John Booth, managing director of sustainable IT consultancy Carbon3IT , which advises businesses on how to reduce the financial and environmental costs associated with their IT estate, said he gets why datacentres operators might be concerned at being left off the list.

As well as his role at Carbon3IT, Booth is also the energy efficiency and standards committee chair at the non-profit UK trade association, the Data Centre Alliance, and confirmed the organisation is in the throes of talking to its members to get their read on the situation. This is with a view to preparing a policy statement in co-ordination with TechUK, he confirmed.

“As datacentres are energy intensive, [they] should be on this list, no? After all, datacentres are an integral part of digital infrastructure. Quite simply, without datacentres our digital world would cease to be,” he said.

“The relationship between digital and energy is 100% aligned and the recent spike in energy prices…means that datacentre energy costs have risen five-fold from an average of £53.08/MWh in February 2021 to £299.67/MWh in November 2022 [having] reached a peak of £511.20/MWh in August 2022.”

He continued: “This means that any organisation operating a datacentres [will] have seen a huge rise in operating costs, which will eventually be applied to end users. For enterprises, this means the costs will be covered by the ‘cost of business’ and give the financial director a headache.

“If they are eligible for the ETII scheme, happy days, while colocation datacentre providers will just pass on the increased costs to their customers.”

That said, there are some nuances to how the datacentre market operates that means many firms will be already shielded from the worst of the energy price rises, continued Booth, so they should not be unduly worried about being excluded from the government’s list.

For instance, organisations that are on the list that run their own private, on-site datacentres will get financial assistance through the scheme. “The energy costs accrued by datacentres is paid for by their customers directly in their monthly bills, [so] their customers may be able to get assistance via this scheme.”

He added: “Datacentres are not on this list for a reason [because] they have always shied away from outright regulation, [and] participating in this type of assistance may come with greater scrutiny and – indeed – the European Union is already planning this,” he said.

Most of the major colocation and hyperscale cloud operators have long-term power purchase agreements (PPAs) in place that fix the price of the power they receive for “five-to-10 year periods”, he added, which have protected them from the worst of the energy market’s more recent volatility.

The situation is likely to be more ruinous for smaller datacentre operators, which may not have access to such agreements, or for larger firms whose fixed-price deals are set to expire soon.

“Smaller operators [without] PPAs will see a staggeringly huge rise in costs [that] they may be able to pass on or they might go bankrupt, in which case other organisations will step in to takeover the contracts of any organisations using their facilities, albeit they will not be on a new contract and they will see the increase in energy prices being applied.”