Colo Carbon Tax Deal Will Cut UK Data Centre Power Bills

Colocation data centres in the UK can now take advantage of the Climate Change Agreement, announced by George Osborne in December, to opt out of green taxes on the electricity they use.

The agreement will save many data centres around 1.5p on every kiloWatt hour of power they use and requires them to take steps to improve their energy efficiency. Shared data centre spaces which sign up to the deal will not have to pay the Climate Change Levy (CCL) – a green tax included in energy supplies – and can opt out of the remains of the last government’s CRC carbon reduction scheme.

CCA gets a carbon tax rebate

“This only applies to colocation sites, because a colocation facility can meet the requirement that the cost of their data centre energy makes up ten percent of their turnover , and enterprises cannot demonstrate this,” said Emma Fryer, head of climate change programmes at  TechUK, who has spearheaded the creation of the CCA.

The deal recognises data centres’ contribution to the British economy, and comes four years’ work led by industry body TechUK. It has been complicated by the fact that CCAs are an established process for manufacturing industries, but have had to be re-engineered to take into account the intangible products of the data centre sector.

The Climate Change Levy is designed to reduce demand for energy by making it cost more, but energy intensive industries such as manufacturing have argued that this hurts their business by increasing their costs. The government therefore sets up “climate change agreements” (CCAs) with energy-intensive sectors: all the players in a sector can sign up, and get a 90 percent rebate on the tax in exchange for committing to a measured programme to meet targets of increased efficiency.

Industry body TechUK led the campaign to get a CCA for the data centre industry, and the result is a scheme that applies to shared data centres renting space or servers, not to in-house enterprise facilities.

Economic importance

The big difficulty was creating a CCA that met the requirements of the sector, according to Fryer. If it takes a certain amount of energy to make a can of beans, manufacturers can commit to reduce that, she told TechWeek, but the output of data centres is intangible. For that reason, the CCA measures efficiency using Power Usage Effectiveness (PUE) which compares overall power use on a site with the power delivered to the IT equipment.

The CCA is a three-way agreement between the Environment Agency, the individual data centre owners, and industry body TechUK. The Environment Agency signs an umbrella agreement with TechUK, setting the overall targets, and individual data centres then sign a specific agreement with the Agency, as well as signing with TechUK to join the CCA as a whole.

To join the scheme, an organisation must submit a site plan of any facility it wants included, showing which parts of the business are covered the application.  It must also create a written description and a flow chart of its business process showing their outputs and inputs (a requirement that carries across from manufacturing industries).

Organisations also have to provide a “70/30” calculation. Listing the power used in the eligible part of the data centre, and the non-eligible parts such as unrelated offices. Assuming the non-eligible power demand is less than 30 percent of the total, the whole site is covered.

Organisations must have metered power and be able to show a calculation of their PUE in a base year (2011 or later if the data centre was built after then). They fill in an eligibility form and after that, they can contact their utility company and opt out of the the CCL, as well as the CRC energy efficiency scheme (another green tax applying to large industries).

“If you pay CCL and CRC, the value of the CCA rebate is around £27 per tonne of carbon (CCL is around £10 per tonne, and CRC is around £16 per tonne),” according to TechUK’s explanatory notes. “This is made up of a 90 percent rebate on the CCL, (0.541 p per KWh of electricity from 1 April 2014), and the exclusion of energy captured under the CCA from CRC (equivalent to 0.867p per KWh from 1 April 2014). In normal language this means that the combined benefit is 1.35p per KWh of electricity.”

Organisations joining the CCA are guaranteed to come out better, explained Julie Gartside of Jacobs, a specialist firm which will run the CCA along with other industies’ agreements: “If you don’t meet the target, you pay the chancellor £12 per tonne of CO2 by which you missed the target. The financials are really quite obvious.”

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