The Brexit divorce has now been pushed off until at least October 31 of this year, and as with any impending separation, it creates a good deal of uncertainty for all parties involved. For datacenters, there are two key issues of concern: 1) the ability to ensure a stable and affordable supply of electricity post-Brexit; and 2) issues relating to data and privacy. Being energy-focused, we will spend more time discussing the former.
Some impacts have already been observed
Depending on the specific outcome (a hard exit compared with a negotiated departure), Brexit may negatively affect the power sector. Indeed, it appears that the looming uncertainty has already had a detrimental impact. A recent study from University College London suggested that the price of power has already been affected as a result of the declining exchange rate between the British Pound and the Euro, because the UK imports some of its power from the European Union (EU).
The average wholesale price of electricity was found to have risen 18% in the year following the referendum.
Other effects may be felt shortly
In a recent analysis of Brexit and energy issues, international engineering firm Schneider Electric highlighted a number of risks. These include:
1. the potential for increased bureaucracy that could hamper EU-UK energy trading in both electricity and gas (the price of gas matters since it is a feedstock for power generation).
2. the potential for future tariffs to affect prices of imported electricity.
3. exchange rate volatilities that have an impact on the cost of energy imports.
4. greater changes in market seasonality, since Europe serves as a buffer for UK gas exports in the summer and imports in the winter.
5. increased potential reliance on global liquid natural gas markets if difficulties arise in importing gas from the EU.
6. growing complexities in the integration of renewable energy, since Europe has served as a buffer, allowing the UK to export power during surplus periods.
Despite these risks, the exposure of a post-Brexit UK to European power markets is only expected to increase as the level of electricity imports grows. Currently, four cables to Ireland, France, and the Netherlands can transmit four gigawatts (GW, a gigawatt is a thousand megawatts) of electricity to the UK, roughly 6% of the country’s demand. However, that number is expected to increase dramatically, as another 11 interconnections are either contracted or planned, representing up to 20% of total demand by 2020. While this may have the welcome effect of allowing the UK to diversify energy supplies and facilitate integration of additional renewable resources, it also has the potential to introduce more price volatility as a result of exchange rate shifts.
Increasingly interconnected and embracing risk
France and Ireland putting out the welcome mat
The UK’s neighbors, particularly Ireland and France, view the Brexit-related uncertainty as an opportunity to woo datacenters to their shores, both as a consequence of the power situation as well as the lack of clarity surrounding EU data laws and how they will affect the UK in the future. France, in particular, has taken the opportunity to suggest that locating there could be beneficial to UK data companies, offering a tie into Europe, as well as a tax break on energy consumption.
Before you pull the plug, look north to the Nordics
At first glance, those sound like attractive options. However, there’s another and more cost-effective alternative for data companies looking to cope with this uncertainty. And that’s to look at the advantages of the Nordic countries. Iceland, Sweden, and Norway in particular all have among the lowest power prices in the world, fast and robust fiber connections, enjoy climates that reduce overall cooling costs, and are subject to EU data provisions.
So if Brexit does indeed force a move, it would make sense to cast the net just a little bit wider to find the best combination of power prices, regulatory environments, and fiber connections. With the decision postponed only until October, there’s no better time to be thinking about this than right now.