Iceland: New Hot Spot for Data Centers?

With data center costs on the rise, Jeff Monroe is always looking for a deal.

The CEO of Verne Global, a wholesale data-center hosting company, has searched the world for places that offer cheap power, easy cooling and reliable communications. While energy costs in the United States are uncertain, Iceland, with its seemingly-unlimited renewable energy, cool temperatures and three (soon to be four) transoceanic cables fits the bill perfectly, he says.

“We are finding those points on the Earth that are optimized for server operation—Iceland hits on all those points,” says Monroe.

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The assessment is good news for a country that has had more than its share of misfortune. Iceland continues to suffer from a deep recession touched off by the global economic meltdown of 2008 and the nationalization of its three largest banks in October of that year. The country’s economy has likely not yet reached its nadir, with the Organization for Economic Cooperation and Development (OECD) estimating unemployment to climb to 10 percent this year and gross domestic product to fall 7 percent.

For companies looking for a good place to put their data centers, however, Iceland’s economic malaise is good news.

“Because of the beating that Iceland took (economically), the government might be willing to put forward some pretty healthy incentives for companies,” says Nik Simpson, senior analyst of data-center strategies for the Burton Group.

Verne’s project is case and point. The data-center company has set up shop in an area that Iceland’s government is actively redeveloping—an old air force base in Keflavik—where it has converted two ammunition storage depots on the base into data centers.

Among the benefits: The country’s infrastructure is relatively new and built for heavy industry—aluminum smelting— and the power so plentiful and reliable that prices can be predicted 20 years out, Verne’s Monroe says. While areas in the United States have begun attracting data centers, such as North Carolina winning Apple’s latest facility, future energy prices are always a worry. Not so in Iceland, where geothermal activity can power data centers as well as heat up hot springs.

“You might be able to find a place in the U.S. that has relatively cheap power, but the volatility (of those prices) is the problem,” Monroe says. While some states, such as Iowa, are banking on their renewable energy projects, “if you have energy that is 20 cents a kilowatt-hour, no one is going to go there because it is too expensive,” he says.

Verne estimates that a mid-sized corporate customer requiring 20,000 to 25,000 servers could save $100 million in a decade by moving to Iceland.

Finding the right combination of conditions, however, is not easy. What goes for Iceland, for example, does not go for its neighbor Greenland, Monroe says. Among the problems: Greenland does not have redundant communications, is too cold, and doesn’t have as technical a workforce as Iceland.

“Iceland is called iceland, but it is green; Greeland is called greenland but it is white,” Monroe says. “You have to worry about humidifying, because it is too dry. You don’t want a place where it is too cold.”

Yet, even with its advantages, Iceland’s location makes it a niche destination, argues Burton’s Simpson. Only large hosting companies or corporations with massive data centers need apply.

“The question is the scale of the data centers,” Simpson says. “When you are building data centers that consumer gigawatts, then there is massive potential for savings.”

Moreover, the three undersea cables connecting Iceland to the rest of the world may not always be enough, the analyst says. While the latest project, DANICE, will connect Iceland to Europe via a 5.1 terabit-per-second cable, only having a few choices reduces competition and can raise costs. In addition, the distance will cause problems with latency-sensitive applications. “It’s not exactly the communications hub of the world,” Simpson says.

Verne’s Monroe argues that Iceland can offer something to everyone, however.

Distributed data storage, such as Akamai’s network, and the increased use of fiber have reduced latency issues, he says. Other locations on the Earth maybe too distant to speedily serve data to the eastern United States and western Europe, but Iceland is not one of those places, he said.

“There is a certain tolerance band on latency, which will disappear (for distant locales), we believe, in decades,” Monroe says. “But there is no application that cannot reside in Iceland today.”

In the end, Iceland allows companies to go green and save money at the same time, says Monroe. “In Iceland, there is no cost to going green,” he says.

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