Britain’s Green Tax Break Will Boost Shared Data Centres

British data centres were awarded an exemption from carbon taxes in George Osborne’s Autumn Statement last December – and the details are starting to emerge. It looks like shared data centres will be paying about ten percent less for their electricity as they slip out of two green taxes. Surprisingly, that may be good for the planet – and it will certainly boost colocation inthe UK.

The details are still being worked out, but this represents recognition of the role of data centres in the economy, and also marks the use of an industry measure, PUE (Power Usage Effectiveness) within legislation.

Two green taxes…

Data centres in Britain are liable to pay two carbon taxes. These are “sin taxes” (aka Pigovian taxes), designed to curb harmful activity by putting up the price – in this case the cost of greenhouse gas emissions.

All British businesses pay the Climate Change Levy (CCL), which adds around 0.5p to the price of each kiloWatt hour (kWh) of electricity. Larger organisations, which use more than 6000 MegaWatt hour of electricity per year, also fall into the CRC energy efficiency scheme. That’s a more complicated thing, which effectively adds around 1p the cost per kWh.

That amounts to 1.5p per kWh, easily ten percent added to electricity costs for a large user.

Data centre businesses in the UK say these taxes make Britain less attractive for building data centres, which could otherwise help the economy. And building fewer data centres doesn’t help the planet, because they just get built in countries without green taxes.

The government has already accepted this argument in other sectors. More than fifty energy intensive industries, from steel-making to pig-farming, have “climate change agreements” (CCAs). Companies in those sectors can claim up to 90 percent rebate on the energy levy, and exemption from the CRC, in exchange for specific efficiency improvements.

Firms sign up to their industry’s CCA, and earn their exemption by reducing the amount of energy they use for each tonne of steel or pig carcass they make – in line with the whole industry. They have to have energy meters and present audited accounts to prove it.

Four years ago, industry body TechUK stepped up to lead a campaign to get a climate change agreement for data centres. It’s taken all that time to persuade the government’s Department of Energy and Climate Change (DECC) to go for the idea, and to work out the details of how to fit the data centre sector into the CCA legislation.

The first hurdle was proving data centres are energy-intensive. The data centre electricity bill makes up more than ten percent of the budget of a colocation provider, so that’s no problem. From this stage, however, it’s clear that the agreement only applies to colos and shared space providers, and not to enterprise data centres run as part of a larger business, because the data centre energy bill will only be a part of overall utility costs.

The industry also had to convince DECC that the data centre sector contributes to Britain’s economy, and is subject to competition from abroad. Again, not too hard to do.

Then came the hard part.

How do you measure efficiency?

A CCA must include an efficiency promise, to use less energy in making a given product. But what exactly is the “product” of a data centre?

After much discussion, government officials agreed to accept a new sort of CCA, in which efficiency is measured by reducing energy “waste”. The data centre CCA measures productivity improvements with PUE (the Green Grid’s Power Usage Effectiveness measure).

To qualify for a big tax break then, data centre owners must agree to record their PUE consistently over a period of years (the scheme runs till 2020 in two-year stages), and show a measured improvement.

The details aren’t worked out yet, but it’s expected they will be required to improve their PUE by “something like 20 percent” by 2020. In fact the scheme’s organisers mean a cut in the bit after the decimal point, so cutting PUE from say 1.5, to 1.4.

PUE fans will point out that last paragraph makes no mathematical sense. The scheme may well offend PUE-rists – but we’ll have to come back to that one another time. We’ll also need to explain the new bureaucratic demands of the scheme – but anything is better than the CRC.
For now, then, lets draw three conclusions from this.

Data centres have arrived

Firstly, data centres are now a thing. Government and civil servants now understand roughly what they are. They can be persuaded to make policy that considers their role – but with great policy comes more paperwork..

Secondly, PUE has now been built into legislation. Wondering what PUE ever did for us? Now it is saving us pennies per kWh.

And thirdly, shared data centres in the UK just got a big boost. They now get cheaper electricity than your company does – so why run in-house servers?

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