Rising energy costs erode competitive edge of colocation datacentre operators

Datacentre operators from across the UK and Ireland have opened up about the financial challenges their businesses are facing on the back of soaring energy costs.

In a survey of 253 datacentre professionals from the UK and Ireland, commissioned by Aggreko, more than 60% said their electricity bills had increased by up to 40% over the past three years, while 3% of the UK respondents reported price increases in excess of 50%.

As a result, more than half of the UK participants in the poll (57%) said electricity now makes up between 10-to-30% of their total operating costs, while a further 25% said they are paying “well over” that amount.

“In the next six months, most expected to be paying similar, although those who said they anticipate paying 40% or more had increased,” said Aggreko in its accompanying 21-page The power struggle – data centres report. “In 12 months’ time, the majority again expected to pay between 10-to-30%, but those who chose one of the higher bands increased once more. This gradual shift suggests low confidence in the energy market over the short term, with most expecting greater strain on the balance sheet.”

Meanwhile, 63% of participants from the Republic of Ireland (RoI) stated that electricity accounts for up to 40% of their total operating costs.

In terms of the impact this is having on the amount of money operators are able to make, it seems UK-based respondents were suffering more than their RoI counterparts.

“Results suggest the UK datacentre market has suffered more than the RoI,” the report continued. “At 58%, the majority said rising energy bills had a ‘significant impact’ on their margin in the last two years. In the RoI, the results were more evenly split between ‘slight’ and ‘significant’ impact at 47% and 49%, respectively. That said, in both markets, only 4% reported no change.”

The respondents to the poll predominantly work at colocation firms with between at least 100 and 2,000 employees, with Billy Durie, global sector head for datacentres at Aggreko, stating that it’s likely to be the smaller players that are feeling the pinch from rising energy costs at the moment.

“It is unsurprising to see datacentres are feeling the pressure,” he said. “As high energy users, the price increases will no doubt make it harder for smaller facilities to remain competitive, and our survey reveals just that.”

The report also comes several months after rising energy costs were cited as a reason why the UK arm of colocation provider, Sungard AS, had fallen into administration. 

The report also highlights the actions operators are taking to mitigate the impact high electricity costs are having on their business, with more than 70% of UK respondents claiming the situation is making it harder for them to be competitive.

These actions include installing more energy-efficient heating and lighting systems, as well as participating in demand-side response schemes, to drive down the amount of energy their sites consume from the grid.

On this point, more than 70% of UK firms polled cited energy security as a concern, which the report said is not an unfounded fear given 65% said they had experienced power cuts at various points over the past 18 months.

Where the RoI respondents were concerned, 80% said power continuity was a concern for them, with 60% having past experience of power outages. “Of that group, many reported having to either reduce or pause operations while the outage was resolved,” the report stated.