Iceland: A Hot Server Spot?

Global Internet giants and computer corporations such as Microsoft, Yahoo!, Cisco and Google are showing a growing interest in Iceland as a possible location for building data centres (also known as server farms) that would be powered by environmentally friendly hydroelectric or geothermal energy. The companies currently run dozens of data centres all over the world, and now Iceland’s competitive environment and cheap energy prices have helped to make the country a feasible option. At the same time, many locals see the service companies as a new and more environmentally friendly alternative to the aluminium industry in the country.

Alexander Picchietti, Director of Business Development and Global Services at the Icelandic telecommunication company Síminn, regards this idea as a positive opportunity for the country and its economy and is optimistic that these talks will lead to something. “I would be willing to bet a lot of money on this becoming a reality. I think that it is in fact inevitable. If you look at computing and the migration to the web, that development will not stop, and as it happens the world will be an interconnected web of data centres, one way or the other.”
Picchietti stresses how important it is to fully understand what a data centre is, what it means to establish such centres in Iceland and what kind of service we are talking about. The computer technology is constantly developing and has changed immensely in the past few decades and data centres are part of that evolution. Data centres have been around for quite a while, in fact, they have been around much longer than the internet. Currently, the data centres exist both for hosting data as well as web services.

“As computing moves to the web, we have these massive centres, which are established for the purpose of housing equipment, connected by fiber-optic cables. It’s a concentration of lots of computer equipment to facilitate this communication. That’s really what a data centre is, a big building with whole bunch of computers,” Picchietti explains.

Iceland is not the only country these giant companies are eyeing as a feasible option for their large computer buildings so I asked how reasonable it is to expect them to choose Iceland as the prime candidate.

“I wouldn’t say it’s reasonable to expect them to come but I would say that it’s reasonable to hope that they will come. In the light of the big guys, [Google, Yahoo and Microsoft] it will be a long fight and there has to be a lot of creative work done to get them to say yes, but as the situation is today, Iceland has an incredibly favourable atmosphere for international business.”

Today, we have plenty of small data centres in Iceland, for example at Anza, Skýrr and TM Software Skyggnir. Picchietti says that what now needs to be done is to take what we have and make it a bit bigger. The only thing that is stopping us, he adds, is a new submarine cable for data transportation between Iceland and Europe. At the moment, we have two submarine cables, Cantat and Farice, but a third one would be necessary for such large companies as Microsoft, Google or Yahoo! to even consider Iceland as a possibility. The current cable condition is not consistent with the advanced technology but plans have been made for an additional submarine cable, which hopefully will be realised by the end of next year.

Being Socially Responsible
What these large companies find so inviting in Iceland is the fact that the country is rich with cheap environmentally friendly energy. Running data centres is a power intensive industry and requires a massive amount of electricity, something Iceland could easily provide. The companies are also looking for a secure location and the right infrastructure, with both conditions fulfilled in Iceland. The country’s location, being mid-way between Europe and North America, is an added bonus.

In recent years, Iceland’s cheap energy has mostly attracted aluminium giants who have built, and have shown interest in building, numerous more smelters around the country, but which has caused a lot of discontent among locals and environmentalists in the meantime. Using the abundant energy sources to attract Internet giants instead of aluminium companies might be a new and more attractive option.

“Overall I think it’s a better use of our fine natural resources, for sure” Picchietti says adding that right now the country could deploy several data centres without having to dam up rivers and kill wildlife. He continues: “At the same time I think everything is a balance and Iceland’s infrastructure would not be like it is today if it wasn’t for the aluminium factories. […] A lot of people like to talk about how bad the aluminium companies are, but what I find interesting is that you have a thriving economy here in Iceland and a lot of that has to do with the foreign investors that come in through large organisations like the aluminium companies. If you think about it in a global perspective, it’s the most socially responsible thing for them to do, to go where they are using sustainable energy sources. To put things into perspective, data centres are significantly dependent on electricity and one of the reasons that Internet companies would look at coming to Iceland is because of sustainable energy. It would be a globally responsible use of resourses,” he says adding:
“The power infrastructure in Iceland, which is really favourable for data centres, is so because of the aluminium smelters that have been built here. Because of the aluminium smelters, it is now possible to do other things. They should therefore be looked at as an enabler to now take the next step.”

Making Iceland Competitive
In May this year, representatives from Reykjavík Energy, an independent service company owned by the City of Reykjavík, the town of Akranes and the local authorities of Borgarbyggð met with representatives from Yahoo! to investigate the possibilities of building server farms in Iceland.

Eiríkur Hjálmarsson, Chief Information Officer at Reykjavík Energy, told the Grapevine on behalf of Reykjavík Energy that the discussion started almost six years ago. The company was examining the market for electricity and economic innovations, and one part of that investigation involved looking into the possibility of establishing data centres in Iceland.
“We informed certain companies about this possibility at that time but when the climate change became a big issue last year we noticed an increased interest in the idea. Data centres require a lot of energy and the claim for environmentally friendly energy is important to the companies running them. The geothermal power is a renewable source of energy and a much better alternative than burning coal or gas which produce greenhouse gases” Hjálmarsson says adding that discussions are still in their initial stage. Now both parties are investigating how profitable it would be to operate data centres in Iceland and what would have to be done to make that a reality, a new submarine cable being an essential part of that process.

When asked if there have been talks of possible locations, Hjálmarsson mentions the lowlands of Borgarfjörður or Kjalarnes. Other sites could be considered, all depending on the conditions the companies find preferable. When asked whether there have been any negotiations about energy prices Hjálmarsson says: “No, we haven’t talked about prices and it really isn’t timely to talk about that part yet. I think these companies are serious about Iceland being a possibility but when anything will be decided is hard to say. We are willing to sell energy and examine the infrastructure, but the next steps are up to the companies. What we [at Reykjavík Energy] need to do now is to be a feasible option for them.”

Halldór Jörgensson, the managing director of Microsoft in Iceland, shares a similar view and hopes that a new submarine cable will be built sooner rather than later. After Microsoft CEO Bill Gates met with Iceland’s President Ólafur Ragnar Grímsson at a convention in January, Microsoft in Iceland received an inquiry from Bill Gates who wanted to investigate the possibility of building a server farm in Iceland. Jörgensson says that the discussions are still in the initial stages though:
“This is a really exciting project but I don’t want to be too optimistic. This hasn’t happened yet. We are competing with other nations where the governments have been more active and participated in the process. We will just have to hope that a new government will show more interest in the idea and make Iceland competitive. When this could become a reality is hard to say. The next step for us at Microsoft is to do field work and that has already been organized,” said Jörgensson.

New Job Opportunities
At this time it is hard to make any predictions as to a specific timeframe or what particular company would locate in Iceland. At the same time, it is hard to predict how large the data centres could be or how many jobs they would provide. Numbers ranging from a couple of dozen up to 200 new jobs have been mentioned, but it will all depend on how advanced the centre will be and how much interaction the centre needs. But if one of these data centres will pop up in Iceland it could mean some positive changes for the economy. For the high-tech industry, data centres would mean more opportunities to employ local IT people in the country. While the centres are being built, construction workers could be temporarily employed and after the centres are ready the buildings will need attendants and security.
As the current situation in Iceland is, we don’t have all of the IT staff needed to service the data centres, so the recruitment of foreign IT talent would be inevitable.

“We would need some foreign employees. We need this expertise which would be a good addition to the Icelandic expertise and an opportunity to educate people in that industry here in Iceland,” Jörgensson explains.

Current talks have focused on server farms that would require approximately 50 to 70 megawatts of power which would be an immensely large first step. Picchietti thinks we need to be careful making assumptions regarding numbers of employees or the size of the data centres, as in the end it should depend on what we want to do but not on what we can do: “We can do a lot, even populate the entire country just with these big buildings, but do we want to? I don’t think so. There’s 1.5-2% unemployment in the country at the moment so the question we should be focusing on is what we need now. […] But I think that the vested interests should be high for everybody and we should work hard to make it happen.”

As of today, nothing has been decided but the discussions will continue in the forthcoming months. Establishing data centres in Iceland could be profitable for the economy and change the employment opportunities in the country as well as bring Iceland’s knowledge industry to a new level. What remains to be seen is whether these talks will lead to action.