Should The UK Climate Change Agreement Favour Colos?

This month the UK’s Climate Change Agreement (CCA) for data centres came into force. And it looks like good news – especially for shared colocation space providers.

Government intervention in any industry is always going to be controversial. Everyone from farmers to steel smelters thinks that they are standing on their own two feet, while everyone else is milking the state for handouts and tax breaks. Any government intervention has to be carefully put together, to achieve the intended goals and not create perverse incentives or waste public money.

Unfair advantage?

In this case, the data centre sector has been classified as a high intensity sector which uses energy for business goals. Owners can get exemption from carbon taxes on the electricity they use, as long as they promise to improve their efficiency. So in the long run, they will use less electricity (or at least use it more efficiently).

The bottom line for data centre owners in the UK is they can now get a roughly 10 percent reduction in their electricity bill . If they spend £3 million a year on electricity, they save £150 thousand to £390 thousand, depending which carbon taxes they pay.

To earn this, the sector as a whole must achieve a 15 percent improvement in PUE by 2020, compared with 2011 levels, and individual sites have to cut their non-IT electricity use by 30 percent.

So overall, does the environment gain? Well it could be argued that, since electricity costs money, data centres would have cut their energy use anyway to the minimum, with or without the CCA.

Tax giveaway?

Under this argument, the government is giving away tax money to pay businesses to do what they would have done anway.

But data centre owners say that if there were no CCA, high electricity prices would stunt their business, and result in less data centre capacity built in Britain.

And, since this is a global market (give or take the anti-NSA marketing of in-country data storage) those data centres would still be built elsewhere, using the same energy or more, so the environment would lose a little and Britain’s economy would lose a lot.

But there is an interesting consequence, that’s been noted in several places. Only providers  offering data centre space can apply. The CCA does not explicitly bar enterprises from applying on the basis of their own data centres, but you only qualify for the CCA for energy used in a data centre, and you can only meet the criteria if the majority of your company’s energy is used in this way.

Enterprise IT departments can’t get the rebate.

Paying a premium for in-house IT

In-house IT is already facing competition from cloud services which offer an economy of scale. And now, the cloud providers will benefit from cheaper power, which must increase the pressure to use servers in shared spaces instead of your own IT facilities.

I did ask London data centre provider LDeX whether the CCA is such a big deal. Is it worth going for, and will savings get passed on? The reply shot back: “Yes, definitely”. And other colos will do the same.

So colo prices will go down because of the CCA. That changes the market. But is it a perverse incentive? Arguably not, since those shared spaces already had economy of scale advantages, and for most users, it’s not just a question of price.

Already firms running their own data centres are (to some extent) paying a premium to do so. If that premium is justified, then they will continue.

Britain’s data centre landscape is changing rapidly anyway. The CCA will certainly affect it, but we may never know what actual difference it makes.

This article appeared on Green Data Center News.

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