Study proposes 97 percent tax reduction, cutting total data center costs by a quarter
A study commissioned by the Swedish government has proposed that data centers should have the tax on their electricity almost completely removed, to boost the country’s role in Internet services.
Manufacturing in Sweden is already supported by a lucrative tax break on its power needs, and a government study commissioned by the Swedish Ministry of Finance has today proposed that this incentive be extended to data centers. If adopted, this proposal would cut electricity prices at Swedish data centers by about 40 percent in January 2017, with large operators such as Facebook saving millions of dollars per year.
“This is a clear signal to the market that Sweden aspires for global cloud service leadership,” commented Anne Graf, investment and development director at the so-called “Node Pole”, a part of Sweden where data centers for Facebook, Hydro 66 and KnC Miner are located. Half of corporate data is going into the cloud in the next three years [according to 451 Research], she said, and Sweden’s location and climate gives it a chance to capture a lot of this.
The proposed 97 percent reduction is not special treatment but “harmonization” with other industries, Graf points out. It has yet to be implemented by the Swedish government, but the local data center industry will be lobbying hard for it.
Despite Sweden’s abundant renewable energy and good fiber connections, recent stories have suggested data centers are locating in Denmark or Finland where taxes are lower. For instance, specialist Bitcoin operation KnCMiner threatened to move across the border to Finland for a more favorable tax regime.
Levelling the tax playing field would in fact settle things in Sweden’s favor, said a Node Pole source, as the underlying pre-tax cost of electricity is lower in Sweden than its neighbors, thanks to the abundance of renewable energy there.
The government study, underway since 2014, has finally proposed that the tax data centers should pay on electricity should go down from $0.023/kWh (0.194 SEK/kWh) to $0.0006/kWh (0.005 SEK/kWh), in line with other industrial operations.
The cut would be a big deal, because electricity makes up the bulk of the cost of running a data center – even in a cold region where the PUE can be made very low. According to Erik Lundström, CEO of the Node Pole, electricity can vary between 30 and 60 percent of the total cost of ownership (TCO) of a data center.
Within the power bill tax can make up as much as 39 percent of the power bill of a 20MW data center according to unofficial figures, and this would be all-but eliminated if the proposal is approved, leading to saving of as much as 25 percent on the total bill.
The Nordic region, including, Sweden, Norway, Finland and Iceland, is expected to triple its data center business, with an investment of $3.3 billion by the end of 2017, according to a survey by BroadGroup.