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Will Iceland become the next global data centre hub?

This article was originally published on Technology.Info.
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London, Amsterdam and Frankfurt, although big markets, have high land values, which as potential data centre hubs, makes further expansion quite expensive. One alternative being mentioned increasingly often is Iceland which upon initial inspection appears very well placed to become the next global data centre hub.

Data Centre Hub Fundamentals: Low cost and high quality

Unlikely as it may sound, Iceland has huge advantages as a potential data centre hub. First of all, it has relatively cheap electricity. Most of Iceland’s electricity comes from hydro-electric or geothermal plants, using readily-available natural resources, and it’s cheap. Early estimates suggest that the cost of a kilowatt of usable power is about $125 in Iceland, compared with $500 in Manhattan, which is going to make a huge difference to the running costs of data centres. The power-hungry aluminium smelting industry has traditionally taken advantage of this, but Icelanders are hoping that the almost equally power-hungry data centre sector might do so too.

Secondly, the climate is relatively cool all year round. There’s no need for air-conditioning to keep servers cool, as you can just open up the plant to the outside air. This also keeps the costs down, as well as making it more environmentally-friendly. The third advantage is location. Strategically placed in the middle of the Atlantic, Iceland is likely to attract customers from both Europe and North America. It also has relatively low crime and corruption, and a good supply of potential data centre employees and IT engineers. Taken altogether, PriceWaterhouseCoopers concluded as far back as in 2007 that these advantages mean that Iceland could deliver relatively low cost but high quality data centre services.

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Natural disadvantages

So what’s the problem? Why isn’t Iceland already a data centre hub? There are two main issues: bandwidth and taxes. Until quite recently, Iceland didn’t have the infrastructure to connect with data centres, but more suitable undersea cabling has now been installed. The previous 25% tax on imported servers has also been abolished, meaning that cost savings are realisable, rather than swallowed up by taxes.
There are other issues, of course, largely related to nature. Iceland is a fairly remote island, although some commentators have suggested that geographical isolation could be a plus from the physical security point of view. And then there are the volcanoes and earthquakes. Even if data centres are located well away from these areas, it’s still quite hard to persuade your potential customers that you won’t let them down when the earth moves until you’ve demonstrated it in practice.

The future for Icelandic data centres

The two companies already running data centres in Iceland, Verne and Advania Thor, report that customers are gently starting to arrive. Many of them are local start-ups, such as Green Qloud in Reykjavik, but a steady trickle of customers from North America and Europe is starting to show an interest, including Datapipe, a large hosting and colocation provider. Google has established a company in Iceland, attributing the decision to Iceland's location and its potential as a data centre hub.
The challenge now for Iceland is to expand before other locations like India and China get there first. And to do so, it needs to demonstrate that it’s got the infrastructure. Perhaps more importantly, it needs to demonstrate to potential customers that they won’t lose their data if there’s an earthquake, or one of the cables gets damaged. In these days of instant connectivity, everyone needs to know that there’s a back-up plan. And if your disaster recovery plan is the cloud, you need to know that your cloud-providing data centre has its own rock-solid back-up plan.