When Labour leader Ed Miliband promised to wave the magic Prime Ministerial wand and freeze residential power prices for two years, should he win the 2015 general election, it put the spotlight back on Britain’s looming energy crunch – and raised the prospect of more big price rises ahead of 2015, and even bigger increases for commercial users.
And the uncertainty wrought by power prices could cripple Britain’s nascent, fast-growing data centre-based IT industries, where power already accounts for about one-quarter of total costs, and rising.
“The worry is that energy companies will want to make up the difference from somewhere and they could then turn to the big commercial users,” says Kate Craig-Wood, managing director of specialist data centre provider Memset.
Craig-Wood’s view is echoed by Neil Stephenson, the CEO of Onyx, which runs a chain of five data centres in the north of England and Scotland. “Our energy bills are already expensive and they are only going one way, and that’s up,” says Stephenson, who is particularly critical of the consequences that Miliband’s proposed price freeze will have on investment in new power generation.
Stephenson is concerned that the uncertainty around pricing spiked by the Labour leader will hamper much-needed investment in Britain’s energy infrastructure. “You are not going to invest in a market if the prices are not allowed to go up,” he says.
When the brownouts hit the fan
It may not just be price rises in prospect, but also brownouts: in just two years’ time, the UK will have closed more than 12 gigawatts of generating capacity.
This will slash the “safety margin of spare capacity” from 15 per cent today to less than four per cent by 2016 – any spike in demand or unplanned downtime could tip the UK into rolling brownouts, which will close industry.
This will get worse as the rest of the UK’s ageing fleet of coal-fired power plants will likely be forced to close by 2023, and greater reliance on gas to generate power could force UK gas prices up by another 50 per cent, if the Japanese experience is any guide. After Japan started to close its nuclear power following Fukishima, the price of imported gas rocketed, making it 60 per cent more expensive than in the UK, according to the former head of regulator Ofgem, Alistair Buchanan, speaking in February this year.
Indeed, prices will almost certainly rise as the coal power stations being closed have been running flat-out to take advantage of low coal prices, while comparatively more expensive gas capacity has been idled. As coal power stations have closed, they have also been dismantled with unseemly haste, rather than mothballed.
All this is causing uncertainty and affecting investment in data centres in the UK – just as the cloud computing-inspired data centre “land grab” is intensifying. This could influence the shape of the computing industry for years to come, and where the jobs, export earnings and the wealth of the future will be generated, says Craig-Wood.
Data centres, she says, are the nucleus of a cluster of wealth-creating activities, from the equipment that goes into them – not just servers, but UK-made cooling and other equipment – to all the engineering, software and other high-value IT jobs that data centres help to generate and which gravitate to where the data centres are.
“There’s a huge amount of innovation supported by data centres. There’s the guys who configure the servers... the software developers who want to deal with people in the same time zone as them. Our customers are building software on top of our infrastructure. They are employing people to go out and sell it, often internationally. Then they have got their service desks, supporting customers,” says Craig-Wood.
Furthermore, the data centre market is becoming more price sensitive and, increasingly, UK-based data centres are facing competition from operators across Europe and the US, where gas prices are one-third of UK prices and power is therefore cheaper. “With the cloud revolution, and businesses wanting to run scalable services... price is becoming more of a factor,” says Craig-Wood.
Already, companies such as Memset are considering investments overseas, instead of the UK, while foreign investors are put off the UK by uncertainty over power prices.
“We are a small company, but have already got an infrastructure stack deployed in the US. We are talking to some people in Norway, where they have very low power costs. For UK plc, it’s potentially quite bad,” warns Craig-Wood.
“Our power costs in Britain, at the moment, are not actually that bad, but it’s the uncertainty that is the killer. That’s what is putting off inward investment. That’s why the ‘mega-brands that have hundreds of millions of pounds to spend on data centre infrastructure don’t want to invest here.”