How government initiatives are impacting data centers

Governments around the world have been closely monitoring the development of data centers to address sustainability concerns arising from the energy-intensive facilities.

Take Singapore, a top hub for data centers. In 2019, the city-state imposed a moratorium to moderate the growth of new data centers in an effort to find a balance between environmental sustainability and supporting business needs.

Other countries such as the Netherlands and Ireland have also paused new builds to reduce the strain on power grids.

But in most cases, construction has resumed. In July, Singapore awarded 80 megawatts of new capacity to four data center operators as part of a pilot program. Permanently halting construction just wasn’t a viable option amid rapidly expanding data processing needs and storage requirements.

“Governments have the responsibility to manage resources and balance competing demands from different industries,” says Bob Tan, Executive Director, Capital Markets Transactions, JLL.

“This not only includes considerations on energy and utilities consumption, but also land usage and allocation — whether it’s better used for data centers or a variety of other industries such as value-added manufacturing services,” he says.

Different approaches, same goal

There’s a common understanding among governments on the need for rules to govern sustainable data center growth, though the regulatory approach and criteria for development may vary.

For instance, Singapore’s pilot program requires data center players to submit proposals with details on their sustainability strategy, how their facility strengthens Singapore’s global and regional digital connectivity, and how it contributes to Singapore’s economy.

“The government’s assessment criteria would also have included the typical evaluation on the number of and the level of talent that the operator is hiring, and the actual value they can deliver to the economy,” says Tan.

In June this year, Singapore also rolled out a new sustainability standard as a guide for data centers to operate at higher temperatures as a means of lowering energy consumption.

Governments in Europe, meanwhile, have relied on both mandatory and voluntary self-regulation to effectively control the pace of development.

“Europe, in general, is a fairly regulated market for real estate,” says Daniel Thorpe, EMEA Data Center Research Lead, JLL. “For data centers, we’ve seen a raft of regulations on areas including data protection, sustainability, and energy efficiency, with more on the horizon.”

On top of compulsory environmental, social, and governance (ESG) reporting under European Union's Corporate Sustainability Reporting Directive (CSRD), most operators have also signed up to the Climate Neutral Data Center Pact, a self-regulatory initiative with key goals including 100% renewable energy use, and power usage effectiveness (PUE) and water efficiency targets.

Some countries are further doubling down on their commitments. In Germany, the Energy Efficiency Act, which is expected to be passed in September, extends beyond meeting PUE targets and even includes a quota for reusing waste heat from facilities.

Over-regulation a concern

Excessive regulation may backfire, however, and potentially result in an outflow of supply to neighboring markets.

Singapore, for instance, has to juggle commitments to international climate change agreements along with retaining its status as Southeast Asia’s digital economy hub, says Dr. Glen Duncan, Head of Data Center Research, Asia Pacific, JLL.

“As the government restricts supply, there has been a spillover effect whereby operators are choosing to establish new hubs in nearby markets, namely Johor Bahru and Batam, where there is available land and is still accessible and affordable to manage workloads,” he says.

In Europe, cities like Berlin, Madrid, and Stockholm have likewise benefited from the spillover from mature data center markets where acquiring powered land is difficult, according to Thorpe.

Hence, striking a fine balance between regulation and development is key to enabling continued progress.

“This can be managed by housing critical workloads locally and only pushing the non-critical functions to these overflow sites,” says Duncan. “Doing so will allow governments to retain a certain level of control without hindering growth.”