Mid-size gas power companies should pay attention to datacentres

21 August 2020

Gas suppliers build on the narrative that critical infrastructure needs energy systems that can keep the lights on, in a greener yet reliable manner. As always, the solution is complementary gas power generation to renewable sources, and this is particularly sound in instable grid sourcing systems. Thinking about it from a populations’ growth perspective, fast growing economies, not only in terms GDP but also in terms of consumer growth such as Nigeria, Ethiopia and India are leading in two contradictory trends. On the one hand, well known is the ever-increasing demand for mobile data, household internet and company’s IT/ITC services in these three markets. However, challenging this trend is the fact that Nigeria (7), Ethiopia (24) and India (14) are among the top 25 countries with the highest amount of electricity blackouts per year, meaning that power outages for data centres cause that some crucial applications simply stop working in real time. As high as expectations are for these markets, Nigeria has to connect 60 – 70% of its population, India about 50% and Ethiopia roughly 75-80%. The numbers may vary depending on the source, the amount of power needed does not, nor the speed at which power distribution is required.

A different way of looking at it is studying capacity. Datacentres require continuous power, and strategic energy systems that allow not just powering computing processes, but that can also assist the cooling processes within these ever-running wired buildings, The combined power-heat management provided by gas companies proves useful here. Not all data centres are Google size, there is a datacentre for every type of gas player. As very attractive investable assets, datacentres, which are receiving funding from previously uninterested funds and equity firms, vary depending on whom they are serving, from 3MW all the way to 150MW-powered farms, the so-called hyperscalers. For some background, companies like Innio who work mainly with mid-sized companies  with fast-start natural gas generators are building on the idea of time (being able to ramp-up datacentres within 20 seconds), while larger energy companies such as Aggreko that have been very proactive to replicate their footprint within the sector. The trend of going greener from large REITS such as Digital Realty is now a good business case, having users such Netflix demanding that their data-storing facilities are cleaner. While large suppliers like Vestas benefit from the CIP-type-funded wind project Digital Realty is expecting in Texas, gas companies need to keep their eyes open to position themselves as complementary generation at all sizes.

So the simple question is why do datacentres present a good business case for gas companies. One is a classic problem: microgrids, which some datacentres require, use diesel, and we all known this isn’t very popular. The second reason is probably the most important – look at the graph below, the growth projection for datacentres until 2025 is rather attractive, and the power required along is the key. Can existing renewable and battery-based microgrids deal alone? Datacentre companies across the board  are reporting a wave of earnings while COVID19 hits the global economy. This is  a testimony that they will not stop building. The expectation from mature markets such as Europe and the U.S. is very attractive beyond 2025, after decades of building datacentres, but the emerging markets requirements for IT infrastructure is unforeseeably large and very much dependent on how reliable national grids can support it. Going back to the cases of Ethiopia, Nigeria and India, can we expect that the Government will act fast enough to push its energy transition and coordinate the digitization of the economy? There is a business case here for IPPs willing to offer self-supply to datacentre builders, and gas suppliers fit in the equation. Parallel to the growth of ramping up power systems, microgrids around datacentres can serve as a doubling up strategy suitable for sites such as universities, hospitals or military bases, which would benefit scaled self-supplied systems.

Finally yet importantly, with a number of companies looking into diversifying their portfolio amid the current decrease of global oil prices, following the money makes sense (CAPEX on hyperscale datacentres was USD 120 billion in 2019). It is also a market where hidden gems will keep appearing. Take the case of Egypt, where Al-Sisi recently ratified Law No. 151 for 2020 on protection of personal data, or any market where data localization has become national policy – while data is mandated to be managed within borders, reliable IT infrastructure is a precondition, and the ability of gas suppliers to power it quickly an unmissable opportunity. There is no debate about whether the infrastructure is needed or not, from all angles the 4.0 economy is the way forward, so it is a rather safe investment to back ever-growing IT assets such as datacentres with a push of gas power.