Iceland: The Next Data Center Frontier?

Strategically located between the US and EU, data centers operations are moving to Iceland for low-cost and renewable energy benefits.

Iceland has become a hot destination. Tourists are drawn by its lush scenery, crisp air, and an attractive exchange rate, but businesses are looking to the Nordic country with an eye towards its energy - green geothermal and hydroelectric energy - and lots of it.

Energy is so abundant and cheap that Tate Cantrell, CTO of Verne Global, owner and operator of a 44-acre data center campus in Keflavik, Iceland, is able to offer competitively low electricity prices up to 20 years from today. "You can't get that kind of price predictability anywhere else in the world. Companies know their IT infrastructure will grow, and that goes along with energy usage," said Cantrell at the Bloomberg Enterprise Technology Summit.

Iceland sits between the world’s two largest data center markets, Europe and North America. Latency from Iceland to NY is near 40 milliseconds, comparable to a trip across US, and it's already very common for enterprises to run applications from the East Coast and West Coast.

In terms of cost predictability, Cantrell explains Europe and North America grids predominantly rely on natural gas and other energy intensive processes with high variable costs. That can wreck havoc on the budgets of data centers. And Iceland's relatively moderate winter temperatures and cool summers save tons on cooling costs.

"Iceland has a 2.5 gigawatt power grid originally built for industrial energy users like aluminum smelters, and there are huge energy resources from rivers and geothermal. So far Iceland has only tapped out one tenth of capacity it can take from the grid, so it really has the ability to scale."

According to Verne Global's findings in 2013, the 10 year energy cost (the length of a standard industry contract) for 1 megawatt of IT load in Keflavik is near $3.5 million, compared to nearly $23 million in London, $20 million in Frankfurt, $12.5 million in Chicago, around $6 million in Oslo, Norway.

A Nordic Migration

Google, Facebook and BMW are among the larger companies moving their data center operations to Nordic counties with the intention of managing their centers at lower costs, as well as utilizing renewable energy resources for that "green" edge.

"People don't really know or care where the data center is," explains Cantrell, instead it becomes about the more robust SLA you can deliver. "Now that the data center is separated from the workflow the next question becomes, 'If I don't care where my data center is, I need to pick the best location from a cost and risk perspective.'"

In evidence of how inconsequential a data center's location can be, Cantrell provides the example of BMW, which as part of an energy efficient vehicle project wanted to ensure the entire manufacturing chain was 100 percent green, and looked to Iceland as an alternative to the data center near their factories in Munich. "They did a lot of due diligence, and ran a blind test with engineers. They did not tell them they switched location and not one person on the team noticed that the applications [including crash simulations, aerodynamic calculations, computer aided design, etc] were being run out of Iceland. And they saved 80 percent on electricity costs."

Cantrell acknowledges the high-performance, low-latency high compute applications for trading are not going abroad any time soon because it lacks the microsecond advantage, but for traders who need to access large data sets and high performance analysis with power-hungry applications, Iceland makes financial sense.

In reflection of Iceland's increasingly popularity for data centers, Verne Global doubled its capacity last year and again in the first half of 2014 year. "We're coming out strong and seeing exponential growth," he adds. "We attribute that growth to rising need for high performance computing. In the next 5-10 years we expect other companies will deploy in Iceland. The enterprises, data center companies, and the end users. It's a nice place to be."
Becca Lipman is Senior Editor for Wall Street & Technology. She writes in-depth news articles with a focus on big data and compliance in the capital markets. She regularly meets with information technology leaders and innovators and writes about cloud computing, datacenters, ... View Full Bio

Using the natural environment to cool a facility is something that datacenter experts have been starting to do in recent years. All I know is, I'd like to get a tour of an Icelandic datacenters, just to see how they work. Plus, I'd get to go to Iceland, which sounds totally cool (no pun intended).

Lower energy costs combined with Iceland's location wbetween Europe and North America makes it attractive a as a data center region.. Though it won't be a place where high speed traders would colocate their servers, 40 milliseconds between NY and Iceland is low enough to conduct research, trade simulations, backtesting and other applications.

The definition of what is a desirable data center location seems to be a constantly shifting target. It's typically driven by cost considerations, but also sometimes by workforce quality (hence the appeal of Ireland in the past decade) and also by politics/geopolitical considerations (hence avoidance of Russia or the Middle East). The appeal of India was cost, but low-cost of the workforce. In Iceland, it's low-cost energy. I'm guessing that right now the workforce is not expensive compared to other markets, but as the economy in Iceland continues to recover I would think that salaries will rise, too.