Perspective

Why data centres aren’t as bad for the environment as you may think


Data centres are often criticised for their carbon intensity and the amount of energy they consume. With the exponential growth of the internet in recent years, data centres are now a fast-growing industry.

They have come under increased focus during the Covid-19 crisis, as people realised how essential they have become to everyday life. In fact, governments now refer to these real estate assets as “mission critical”, as they are vital to the effective functioning of society.

Less than five years ago, articles in the media were warning that digital infrastructure, such as data centres, could consume 20% of global energy by 2025. This was easy to believe against the backdrop of rapid growth in connectivity that was taking place.

Projections from the International Energy Agency (IEA) suggest that internet traffic will double between 2019 and 2022, with the Covid-19 pandemic adding to this trend through greater demand from areas such as online gaming, video conferencing and streaming.

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So, with this exponential growth in all things digital and data related, it is still easy to believe that digital infrastructure might be one of the key consumers of global energy. However, the reality is somewhat different from the dire predictions.

Many would be surprised to hear that the data centre industry only consumed 1% of global energy in 2020, according to figures from the IEA. This is a significantly lower figure than the relatively recent predictions of 20% of global energy. And while data consumption has grown rapidly over the past decade, the amount of power that data centres consume has remained largely static.

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The main reason why these predictions were so wrong was the innovation that took place in three key areas. Firstly, the operation and construction of data centres; secondly, the transferral of private data to the cloud; and finally, the design of IT equipment. By analysing each of these areas in more detail it is easier to understand why energy consumption by data centres has managed to remain static despite the data boom.

Data centres are operated more efficiently

Some specialist data centre operators have developed a number of tools to maximise the efficiency of data centres that they manage. These companies include Switch, Equinix, QTS, Interxion and Next DC. These companies are increasingly setting the global standards for construction, cooling, power optimisation and security.

Structural shift to the cloud

Previously, companies ran their data servers from their own offices, often locating them in the basements. This was a very inefficient use of their infrastructure. As an example, servers would be running 24 hours a day irrelevant of whether they were actually being used or not. However, companies have now realised that they can cut costs and improve operational efficiency by moving their data to professionally run data centres.

The best run data centres will use artificial intelligence to establish precisely where and when power and cooling is needed Therefore, it is an easy decision for companies to make and it has been estimated that businesses can reduce their energy usage by 30% by using a professionally managed cloud service.

Innovative IT equipment

New advances in artificial intelligence and IT equipment, such as servers, has resulted in data consumption having a far smaller carbon footprint than in the past.

Despite the progress, more needs to be done

For the industry to continue to grow in a sustainable way, data centre companies must actively work towards having a net zero impact. Within the industry, there are leaders and laggards. Although there is a lack of standardised reporting metrics to effectively compare companies, there is one metric that is commonly cited.

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Power usage effectiveness (PUE) is a measure of energy efficiency and is calculated as the ratio of total electricity consumed by a data centre to the electricity delivered to the computer infrastructure to power servers. A lower PUE indicates greater efficiency, with the industry average at 1.59 according to the Uptime Institute’s global data centre survey in 2020.

Data centres continue to be mission critical

It is important to look beyond the negative headlines and remember that data centres continue to be a mission critical sector. Investing in companies that are making a positive impact within this sector is crucial to creating a sustainable digital future.

This article is issued by Cazenove Capital which is part of the Schroders Group and a trading name of Schroder & Co. Limited, 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. 

Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested.

This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements.

All data contained within this document is sourced from Cazenove Capital unless otherwise stated.